Drivers of Value Creation – The Role of Value-Based Management and Underlying Institutions

While the performance effect of value-based management (VBM) has been debated in practice and academia, recent research suggests that little is known about contingency factors influencing this effect. In this study, we contribute to the understanding of contingencies that could explain variations in VBM performance outcomes. Specifically, we (1) test whether VBM relates to higher firm performance, and (2) we examine the external institutional conditions that may magnify the performance effect of VBM. We empirically analyze our research question using data on 4,288 firm-years of firms from the MSCI Europe Index and the S&P 500 Index between 2005 and 2010. After controlling for various possible confounding effects, we find that VBM relates to higher firm performance and provide evidence that complementary external institutions at the firm and national levels amplify the performance effect of VBM. Furthermore, our findings exhibit an interrelation between external institutions and indicate a complementary relationship between VBM, financially-oriented ownership, and national shareholder orientation, increasing value creation