Value-based Management and Merger & Acquisition Returns: A Multi-level Contingency Model

Whereas the performance effects of value-based management (VBM) have been intensively addressed in previous research, little is known regarding whether—and which—specific managerial decisions are improved by VBM. In this study, we take advantage of merger and acquisition (M&A) decisions that allow us to analyze a specific managerial decision with a direct assessment by the capital market. Moreover, to better grasp the underlying mechanisms of VBM, we consider potential contingency factors that may affect the relationship between VBM and M&As. Specifically, we examine the risk of managerial self-interest in M&A decisions that may be influenced by a firm's internal, industry- and country-specific contexts. We gather VBM data of firms from the Standard & Poor's 500 Index and the MSCI Europe Index between 2005 and 2011, and combine the data with deal data resulting in a sample of 2787 deals. Our empirical results do not indicate a positive direct effect from VBM on M&A returns. However, we find that VBM leads to superior M&A returns in the presence of contingency factors that increase the risk for self-interested managerial decisions.