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Michael (2010) : Considering the shareholder perspective: value-based management systems and stock market performance, CEFS working paper series, No. 2010-09 AbstractWe empirically study the use of value-based management systems in listed German firms and examine implications for firms' stock market performance. Using a novel, hand-collected data set covering 1,083 firm years from 2002 to 2008, we find that value-based management systems become increasingly common. Specifically, in 2008 42% of our sample firms have implemented such a system. In the empirical analysis, we find that firms that implement value-based management systems earn statistically significant and economically substantial abnormal stock market returns measured within a two-year adoption phase. These excess returns are not jeopardized by poor post-adoption returns. In the analysis, we carefully control for risk and account for endogeneity concerns. Overall, our findings support the view that shareholders consider the adoption of a value-based management system as a credible signal that management will focus on shareholder interests and that such systems actually increase shareholder value. * We are grateful for valuable comments of several anonymous referees,

Short:We hypothesize that companies with board-level employee representation (BLER) experience a lower probability of crisis-induced dismissals than other firms. Theoretically, we link this effect to the employee directors' ability to reduce the information asymmetry and moral hazard in employee-employer contracting, thereby facilitating the implementation of labor-cost adjustments that are an alternative to workforce dismissals. We confirm our hypotheses by analyzing the behavior of Scandinavian public corporations with/without employee directors during the Great Recession.

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