Determinants of the Adoption and Performance Effects of Value-Based Management Systems in Germany

This paper examines the economic determinants that lead German firms to adopt value-based management and control systems (VBMSs). Further, we investigate whether firms' operating performance improves after VBMS adoption. Using a hand-collected data set of German listed firms covering 1,575 firm–years from 2004 to 2011, we predict and find that firms are more likely to adopt a VBMS when they are large and have low market-to-book ratios and high foreign sales ratios. In addition, VBMS adoption is more likely if the free float is larger than the blocking minority of 25%. These findings support our argument that the adoption of VBMSs is more likely when information asymmetry is high. However, we do not find that VBMS adoption improves operating performance. Therefore, our results indicate that German firms adopt VBMSs to appear more attractive and transparent to investors (signaling function), but not necessarily to improve performance. We conclude that our results should be interpreted against the background of increased shareholder value orientation among German firms and a long-standing tradition of a sophisticated cost accounting system