【正文】 gement metrics do not do a good job of explaining changes in stock prices, and that changes in expectations need to be considered. Copeland’s argument underscores the difficulty in testing for any relation between the use of VBM systems and stock price improvement. Our sample selection method distinguishes our study from previous studies. These relevant studies only have access to data on VBM pensation plans for top executives, and exclude firms that use VBM systems for evaluation and budgeting (see Ittner and Larcker, 1998, 2020). Our sample includes firms that tie VBM to pensation, and also firms that use VBM systems for evaluation, budgeting, and monitoring but not for pensation. This feature allows us to explore the more extensive use of VBM, and also allows us to shed light on the endogenous decision process. Our sample also allows us to examine a broader group of valuebased management systems, rather than only systems based on the EVAtype measures of residual ine used in these prior studies. Our method makes three additional contributions. First, we extend our analysis of postadoption performance to five years beyond the year of adoption, allowing us to examine longerterm effects. Second, we use different tax rates based on the statutory tax rate in effect for a particular year as opposed to assuming a constant tax rate for all years. Third, we use a cost of equity based on the capital asset pricing model, a cost of debt based on Moody’s bond yields, and the firm’s capital structure to estimate a weighted average cost of capital for each of our sample firms, and for all firms with data available on COMPUSTAT, for matching purposes. This contribution allows us to more accurately estimate residual ine for each firm, to match firms more accurately, and to examine the contribution of changes in the cost of capital on postadoption performance. Effective corporate governance and financial control includes the use of monitoring and incentive mechanisms to encourage the creation of shareholder value. Valuebased management systems attempt to acplish this goal by providing managers with a set of decisionmaking tools that identify which alternatives create or destroy value, and often link pensation and promotions to metrics associated with shareholder value. Although the use of VBM has increased significantly in past years, we have only limited information on its efficacy as a means of corporate governance. To shed light on this issue, we investigate two related research questions: (1) Does the adoption of a VBM system improve operating performance? And (2) What factors enhance or hinder the effectiveness of VBM systems? We find that the typical firm in our sample significantly improves residual ine following the adoption of VBM. No one ponent of residual ine (aftertax operating profit, invested capital, or cost of capital) drives the result, but rather all three ponents appear to work together. VBM does not appear to be more or less effective when used for pensation or when adopted by firms with high or low levels of capital expenditures, growth opportunities, or investment in working capital. We do not find any indication that gains in residual ine e at the expense of longterm investment. Firms are more likely to tie pensation to VBM when they perform better prior to adoption and when other firms in the industry have also tied VBM to pensation. Firms with higher growth opportunities are less likely to tie VBM to pensation, consistent with options being more efficient for these firms. Firms with higher levels of workin