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Title: Corporate Financial Control Mechanism sand Firm Performance: The Case of Value-Based Management Systems
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Author: Harley E. Ryan,Jr. and Emery A. Trahan
Abstract: 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 e 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 pensation 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 firm growth opportunities. Overall, the evidence suggests that VBM improves economic performance and the efficient use of capital.
Keywords: value-based management, residual e, pensation, corporate governance
1 INTRODUCTION
Effective corporate governance and financial control includes the use of monitoring and incentive mechanisms to align divergent interests between shareholders and managers and encourage the creation of shareholder value. Value-based management systems (VBM) provide an integrated management strategy and financial control system intended to i