Differences in the sophistication of Value-based Management – The role of top executives

• Published in: Management accounting research 2013-03, Vol.24 (1), p.3-22
• Main Authors: Burkert, Michael, Lueg, Rainer
• Format: Article
• Language: English
• Subjects: CEO; CFO; Chief executive officers; Chief financial officers; Diffusion theory; Education; Impact analysis; Perceived environmental uncertainty (PEU); Personality traits; Strategic management; Studies; Tenure; Top management team (TMT); Value-based Management (VBM)
• ISSN: 1044-5005; 1096-1224
• DOI: 10.1016/j.mar.2012.10.001

► Value-based Management (VBM) sophistication substantially differs among adopters. ► Causes: education and tenure of the CFOs; perceived environmental uncertainty; risk. ► Data: archival, interviews, survey from German top HDAX-executives (58% response). ► Method: PLS (R2=55%), multi-dimensional construct for VBM. ► Controls: early adoption, ownership, risk, capital intensity, performance, size. This paper responds to recent calls for studying the diffusion of management practices beyond classifying companies as adopters and non-adopters (Ansari et al., 2010; Lounsbury, 2008). In particular, we examine how characteristics of CEOs and CFOs as well as perceived environmental uncertainty (PEU) of the top management team (TMT) affect the sophistication of Value-based Management (VBM) for which we develop a multi-dimensional construct. We base our analyses on a unique dataset that comprises archival data, interviews and survey data from top executives of German HDAX companies (58% response rate). The results of our Partial Least Squares (PLS) model (R2=55%) support most of our hypotheses and provide interesting findings. We find that the CFOs in our sample have substantially more influence on VBM-sophistication than CEOs. In particular, we document that cognitive styles (educational background in business) of CFOs have a substantial impact on VBM-sophistication. Moreover, short-tenured CFOs are associated with high VBM-sophistication. As expected, the related negative effect of long tenure on VBM sophistication is practically offset if the CFO has an educational background in business. Another relevant finding is that high perceived environmental uncertainty of the top management team is significantly associated with lower VBM-sophistication. The results of our control variables moreover reveal that systematic risk (‘beta’) leads to higher VBM sophistication.