The Sophistication of Value Based Management: some Evidence from Private Equity Backed Firms

In recent decades, “Managing for value” in privately held companies has arisen (Hill and Zeller, 2008). Managerial accounting has evolved to encompass a more strategic emphasis on economic value creation (Ittner et al., 2001; Institute of Management Accountants, 1999; International Federation of Accountants, 1998). Many studies have been conducted on Value Based Management (VBM), but still there are emerging research opportunities. There are inconsistent results on the association between VBM adoption and performance growth (Lueg and Shaffer, 2010; Bughin and Copeland, 1997; Olsen, 1999). Furthermore, the concept of VBM is applied in different ways, particularly in terms of: objectives and strategies; organizational level of VBM adoption; performance measures; target setting; incentives and rewards (Malmi and Ikӓheimo, 2003). Additionally, there is a large opportunity to create shareholder wealth that simultaneously drives us toward a more sustainable world. However, this opportunity must be fully exploited yet (Hart and Milstain, 2003). In an attempt to help fill these gaps, in line with Ferreira and Otley’s (2009) Performance Management System (PMS) and Ittner and Larker (2001)’s frameworks, this paper aims to investigate the VBM Private Equity-Backed Firms, the influence of contingent factors on the degree of sophistication and the impact of the sustainability movement in such PMSs. We used multiple case studies (Yin, 2003) on Italian Private Equity-Backed Firms in order to meet these research objectives. The choice of the private equity field was based on several considerations: Above average performance (Wilson et al., 2012; Beuselinck, Deloof et al. 2009); Private Equity`s underlying rationale (Metrick and Yasuda, 2011; Malmi and Ikӓheimo, 2003); Private Equity Firms’ best practices can be transferable; Private Equity Firms invests exclusively in non-listed companies