Information asymmetries and the value-relevance of cash flow and accounting figures: empirical analysis and implications for managerial accounting

While some of the modern performance measures used in managerial accounting rely on cash flow based figures others try to take advantage of the information content of accounting figures. However, whether the additional information content in the accrual components of earnings improves the internal performance measurement is an open empirical question. To shed light on this question, I examine the correlation between operating cash flows 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. --accounting figures,performance measures,total shareholder return,managerial accounting

Equilibrium security prices with capital income taxes and an exogenous interest rate

We are interested in the effect of capital income taxes upon security prices when investors face locally segmented stock markets and a global bond market. Therefore, we analyze an equilibrium model of an economy with binomial uncertainty, an exogenous risk-free interest rate and a representative stand-in household. In this setting, the pricing effect for domestic securities is shown to be a function in three determinants: the covariance between pre-tax payoffs of securities and the aggregated market portfolio, the exogenous pre-tax interest rate and the effect of taxation (and redistribution) on the aggregate welfare of the stand-in household. We find that taxation of capital income is nondistorting if tax proceeds are immediately redistributed within the cohort of capital market participants. If, however, taxation represents a policy tool to transfer wealth from capital market participants to non-market participants, the level of the statutory tax rate is reflected in equilibrium security prices and taxation affects households portfolio decisions, which in turn may affect investment decision of firms. --equilibrium security prices,capital income tax,equity premium

Determinants of director compensation in two-tier systems: evidence from German panel data

Building on a unique panel data set of German Prime Standard companies for the period 2005-2008, this paper investigates the influencing factors of both director compensation levels and structure, i.e. the probability of performance-based compensation. Drawing on agency theory arguments and previous literature, we analyze a comprehensive group of determinants, including detailed corporate performance, ownership and board characteristics. While controlling for unobserved heterogeneity, we find director compensation to be set in ways consistent with optimal contracting theory. I.e. compensation is systematically structured to mitigate agency conflicts and to encourage effective monitoring. Thus, our results indicate that similar types of agency conflicts exist in the German two-tier setting. --Director Compensation,Corporate Governance,Outside Directors,Two-tier System,Agency Costs

Unternehmensmerkmale, Performance und Corporate Governance-Mechanismen als Determinanten der Vorstandsvergütung in deutschen Aktiengesellschaften – Eine empirische Untersuchung für DAX, MDAX, SDAX und TecDAX-Unternehmen

Wir untersuchen die Vorstandsvergütung der in DAX, MDAX, SDAX oder TecDAX geführt deutschen Aktiengesellschaften. Nach einem deskriptiven Überblick über die Höhe und die Zusammensetzung der gewährten Vergütung analysieren wir Einflussfaktoren auf der Höhe der Gesamtvergütung, wie auch der variablen Vergütungsbestandteile. Wir unterscheiden dabei drei Kategorien möglicher Einflussfaktoren: Unternehmens-, Performance- und Corporate Governance-Merkmale. Bereits einfache Unternehmensmerkmale, wie beispielsweise die Bilanzsumme weisen einen hohen Erklärungsgehalt auf. Während wir dann jedoch für akti-enkursorientierte und buchhalterische Performancemaße ökonomisch nur sehr schwache Effekte auf die Vorstandsvergütung finden, erweisen sich die von uns untersuchten Corporate Governance-Merkmale, wie Eigentümer- und Aufsichtsratsstruktur, sowohl unter statistischen als auch unter ökonomischen Gesichtspunkten als substantielle Determinanten der Managementvergütung. Die Ergebnisse zeigen sich konsistent für die Analysen der Gesamtvergütung und der variablen Vergütungsbestandteile und lassen damit auf hohe Agencykosten in deutschen Aktiengesellschaften schließen.Managemententlohnung, Corporate Governance,

Determinanten der Vorstandsvergütung: Eine empirische Untersuchung der deutschen Prime-Standard-Unternehmen

Basierend auf einem neuen, die deutschen Prime-Standard-Unternehmen für die Jahre 2005 bis 2007 umfassenden Datensatz untersuchen wir die Determinanten der Höhe der Vorstandsvergütung. Dabei unterscheiden wir drei Kategorien möglicher Einflussfaktoren: Unternehmens-, Performance- und Corporate Governance-Merkmale. Bereits ein einfaches, die Unternehmensgröße, Industrie- und Zeiteffekte enthaltendes Regressionsmodell erklärt im Querschnitt über 60% der Variation der Vergütungshöhe. Die Analyse der Performancesensitivität der Vergütungshöhe zeigt gemischte Ergebnisse: Zunächst ist zu konstatieren, dass aus ökonomischer Sicht die Performancesensitivität sowohl im Quer- wie auch im Längsschnitt als eher gering zu bezeichnen ist. Eine Unterscheidung der Unternehmen in Unternehmen in Streubesitz und dominierte Unternehmen zeigt, dass dominierte Unternehmen geringere Vergütungspakete gewähren und die Vergütungshöhe in diesen Unternehmen stärker an die Unternehmensgröße und die operative Performance, tendenziell jedoch geringer an die Aktienkursperformance gekoppelt ist. Eine Analyse des Zusammenhangs mit der Aufsichtsratsstruktur zeigt schließlich, dass Aufsichtsratsgröße und Charakteristika des Aufsichtsratsvorsitzenden signifikant mit der Vergütungshöhe zusammenhängen. Zusammenfassend stellen wir fest, dass trotz substantieller Änderungen des deutschen Corporate Governance Systems unsere Ergebnisse damit weiterhin auf hohe Agencykosten in deutschen Aktiengesellschaften schließen lassen. --Vorstandsvergütung,Corporate Governance,Empirische Analyse,Prinzipal-Agenten-Theorie

Considering the shareholder perspective: value-based management systems and stock market performance

We 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. --value-based management,corporate governance,econometric analysis,Germany

Aktienbasierte Langfristanreize im Rahmen der Vorstandsverguetung: Evidenz auf Basis Deutscher Prime Standard Unternehmen

While in the US stock-based incentives are commonly used since the 50s of the last century, in Germany they were invented only some ten years ago. Even in 1996 firms faced considerable regulatory difficulties when willing to grant such incentives. In the meantime the legal environment has changed significantly and today even the German Corporate Governance Code encourages firms to grant stock-based long-term incentives. However, examining a hand-collected unique data-set we find that even only 37% of all German Prime Standard firms have used stock-based long-term incentives in 2006. In these firms stock-based long-term incentives account for less that 23% of the overall compensation to members of the management board. Our empirical analysis reveals that in particular large firms with high RnD expenditures, substantial opaqueness and high free-float are likely to grant stock-based long-term incentives. Furthermore, we find that high inside ownership and large blockholders are negatively correlated with the probability of granting stock-based long-term incentives. Finally, we find that an externally hired CEO increases the likelihood of stock-based incentives, in particularly if the chairman of the supervisory board is a former executive of the firm. In sum, our evidence is consistent with the view that shareholders use stock-based incentives as a governance mechanism to mitigate the agency problem in complex firms with high information asymmetry. --executive compensation,incentives,corporate governance,Germany