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Corporate Financial Control Mechanisms and Firm Performance: The Case of Value‐Based Management Systems
Author(s) -
Ryan Harley E.,
Trahan Emery A.
Publication year - 2006
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2006.00660.x
Subject(s) - tying , sample (material) , control (management) , business , enterprise value , value (mathematics) , capital (architecture) , compensation (psychology) , monetary economics , economics , industrial organization , microeconomics , finance , chemistry , management , archaeology , chromatography , machine learning , computer science , history , psychology , psychoanalysis
We examine the performance of 84 firms that adopt value‐based management (VBM) systems during the period 1984‐1997. The typical firm significantly improves matched‐firm‐adjusted residual income after adopting VBM. This improvement persists for the five post‐adoption years studied. After controlling for possible sample bias, we find that large firms show less improvement than small firms. We find a negative relation between tying compensation to VBM and post‐adoption performance. We also find that firms reduce capital expenditures following VBM adoption, but that the reductions in spending do not differ based on the firms' growth opportunities. Overall, the evidence suggests that VBM improves economic performance and the efficient use of capital.