Shareholders vs. Stakeholders? The Link between Value-Based Management Sophistication and Corporate Sustainability Performance and Their Joint Effect on Financial Performance
Abstract
Shareholder and stakeholder orientation are often portrayed as opposing and mostly analyzed separately. Even though enlightened stakeholder theory sug- gests that both views are compatible and even complementary in the long term, empirical evidence on interrelationships and joint effects is scarce. This paper closes the gap by analyzing corporate sustainability performance (CSP) and value-based management (VBM) sophistication, a framework quantifying the implementation level of an approach that explicitly targets shareholders’ value creation interests. Drawing on a hand collected VBM dataset with more than 2,500 European firm years from 2005 to 2020 allows us to investigate, firstly, the association between both orientations and, secondly, joint capital market per- formance effects. The results of our first stream support the idea that both orien- tations can co-exist. Although VBM sophistication does not significantly influ- ence CSP across the entire period, additional tests indicate a positive effect in the most recent years. Further, systematic risk and institutional ownership lead to highly significant positive effects after the financial crisis. Our second stream provides evidence that both orientations can be complementary as we find that the combination of substantive – deeply implemented – VBM and high CSP lev- els leads to better capital market performance. Moreover, we show that this ef- fect was particularly salient during the financial crisis, indicating superior joint performance effects during volatile periods.