Creating and Measuring Shareholder Value

MBA Business Finance Management Dissertation Ideas, Economics Projects Topics Thesis Ideas and Abstracts in PDF, DOC, PPT

Creating and Measuring Shareholder Value

Postby Anup V » Tue Aug 07, 2012 11:07 pm

To measure shareholder value creation has been the issue of discussion all around the world. It has become crucial since the companies were increasingly committing to creating shareholder value. Old traditional measures are criticised for having low correlation with shareholder value creation. Therefore, new valuation methods are needed to measure the shareholder value creation. However, the changing process from the traditional methods to the new ones is not easily welcomed. How then shareholder value creation is measured nowadays is of crucial importance. In order to address this issue, the thesis presents in a general way how shareholder value is created as a background to the valuation methods being used for shareholder value creation measurement. The empirical part of the study showed that although the companies in this study have implemented many ways to create shareholder value, little effort is being made to measure it since the majority of them are still using the traditional accounting measures. The reasons for this may be conservatism and lack of pressure from both the stock market and shareholders. Having noticed this we then recommended the companies to use “value based methods” when measuring shareholder value creation since they are more reliable.

One of the most frequently used terms in business today is Shareholder value. The "equity culture" wildfire is spreading rapidly from the US to the rest of the world (Thakor et al, 2000). It is seen as crucial all over the world. In Sweden the new measurement systems of shareholder value creation were introduced in the last decade and have been slowly introduced in various companies. Indeed, some of the leading companies like SCA and SKF have made the creation of shareholder value one of their key corporate objectives.

Moreover shareholders are the owners of the corporation and the board of directors are their representative and elected by them. The objective function of the corporation is to maximize the shareholder value. Managers in most of the developed world must focus on building shareholder value

Objective of the Research

The purpose is to conduct an analytical study of different methods used by companies to measure shareholder value creation. The study also aims to give a general picture of how shareholder value is created as a background to measuring shareholder value. Furthermore all that will be done will be based on an empirical study.

Creating and measuring shareholder value can be studied from different perspectives. When studied from the shareholder or other stakeholder perspective, the research is mostly based on the information collected from the shareholder or stakeholders. When it is the stock market perspective, the information used in the study is collected mainly from the stock market. If the study is based on the company perspective then the information used will mainly be collected from the company. Every perspective is very important to investigate. However due to the time limit and the scope of the problem we are obliged to make some limitations.

Many factors can affect shareholder value such as the environment surrounding the firm, weaker business climate, political situation, and currency fluctuations. We are not going to cover the above factors in our study since the background information will be covered in general and it is not the main focus of our research. However they are discussed partially only when our sample companies consider them to be crucial factors affecting their operations.
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