The shareholder value effects of using value-based performance measures: Evidence from acquisitions and divestments

Value-based (VB) management is an approach that directs corporate actions toward the objective of creating shareholder value. However, previous studies on the performance and shareholder value effects of VB performance measures have yielded inconsistent evidence. This inconsistency is at least partially attributable to the failure of corresponding studies to investigate the effect of VB measures on specific decisions that affect performance. This paper focuses on mergers and acquisitions (M&As) as important managerial decisions to analyze the performance effects of VB measures by comparing the users and non-users of such measures. Based on a sample of 235 acquisition and divestment announcements of listed German firms between 2003 and 2012, we provide evidence that market reactions to acquisition announcements are more positive for firms that have implemented VB metrics. Conversely, the use of VB measures is not significantly associated with market reactions to divestments. We also investigate firm performance in accounting measured over a long term but find no conclusive differences between users and non-users of VB measures for either acquisitions or divestments.