Value-Based Management's Promise to Support Managerial Decision- Making - an Analysis of Divestitures

While proponents of value-based management (VBM) claim that VBM can be distinguished from other control mechanisms by its support for managerial decision-making, empirical evidence for this argument is rare. We focus on divestiture decisions as literature suggests that managers do not pursue an own agenda when they decide to initiate a divestiture, and thus, are aligned with shareholder interests. This fact allows for a more precise analysis of VBM’s suggested support for managerial decision-making because potential benefits from managerial alignment are already realized. We empirically analyze the impact of VBM on divestiture success based on a dataset comprising 1,064 divestitures of multi- business firms between 2005 and 2012. We further analyze how differences in return and risk profiles among a firm’s business units moderate this relation. Our empirical findings support the expectation that VBM increases divestiture success. Moreover, the results indicate that variations in return and risk profiles a...