Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. and earnings with firm's total shareholder returns. Using fixed firm effects regression methods for a large sample of German listed firms covering some 5,000 firm years, the analysis shows that generally operating cash flow and earnings are both positively correlated with total shareholder return. However, with increasing information asymmetry earnings become less correlated with the firm's stock market performance and operating cash flows dominate earnings in explaining total shareholder return (and vice versa). These results suggest that, the information content of accounting figures is only relevant in settings characterized by low information asymmetries and, thus, there is no one-size-fits-all performance measure for managerial accounting purposes. -2 -
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IntroductionRappaport's shareholder value approach claims that managerial decisions are to be judged against their effect on shareholder wealth, i.e. their impact on the firm's stock market per- Rappaport 1981Rappaport , 1998. Adopting that view the (only) relevant performance measure for managerial accounting purposes is total shareholder return to be earned by investments in the firm's stocks. However, from the perspective of optimal incentive design using total shareholder return (TSR) as a performance measure has a serious drawback, since it is well-known that a substantial part of the variation in TSR is due to exogenous events beyond control of the management. Thus, although Rappaports shareholder value approach seems widely accepted today, there is an ongoing debate about appropriate internal performance measures to be taken to evaluate managerial decisions and to be used in managerial accounting.From an agency perspective, optimal incentives rely on performance metrics that use i) variables that are clearly aligned with the objectives of the firm (i.e. shareholder value) and ii)variables that measure the outcome of managerial decisions sufficiently well (e.g. Kaplan and Atkinson, 1998). In particular, there should be a direct link between managerial decisions and the performance variable. Now, many consulting firms have invented specific performance measures with the common goal to provide a metric that measures the outcome of management decisions, i.e. the firm's operating performance, in such a way that internal performance as measured by the metric is highly correlated with the firm's stock market performance.While all these performance measures ha...