07.04.2026 Paper presented at the 85th VHB Conference

Professor Rapp presented the paper “Too much of a good thing? Value-based management control systems and financial leverage” at the 85th VHB Conference in Göttingen

The paper, that is co-authored by Dr. Julia Udoieva-Wagner hypothesizes that value-based management control systems (VBMCS) provide incentives for excessive leverage of firms. Theoretically, the paper argue that managers of VBMCS adopters have incentives to implement WACC-minimizing leverage, which however is higher than value-maximizing leverage because standard WACC frameworks ignore the value of financial flexibility. Using hand-collect granular data on the adoption of VBMCS for a large sample of German firms, the authors find that VBMCS adopters have higher leverage and exhibit slower leverage adjustments, in particular in case of excessive leverage. Consistent with intuition, this pattern is more pronounced for VBMCS users with lower needs for financial flexibility. The authors also document that financial leverage dilutes the positive effect of VBMCS on firm value. Overall, the results suggest that managers of VBMCS adopters use leverage to reduce the cost of capital, even at the expense of giving up financial flexibility.