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Creating and measuring shareholder value in British corporations

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Joseph K.
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documents in English
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case study
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15 pages
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  1. Introduction
  2. Research methods
  3. Theoretical framework
  4. Empirical studies
  5. Analysis
  6. Conclusion, recommendations and suggestions

The shareholder value in business industry is the most commonly used term in present age. The wildfire of equity culture is quickly spreading from United States to the whole world business industry and it has been grasped as critical today as it was in the last few decades. In United Kingdom the new systems of measurement for the creation of shareholder value were established in the last few years and these systems have been slowly but widely set up in number of firms.

In fact, in the United Kingdom some of the firms like Ironsides Lubricants and SCA have adopted shareholder value creation as their key business objective. While in other areas of Europe the idea of shareholders value creation had spread rapidly and more early. For instance in Germany, one of the market leading companies named as Veba ? divisions closed to chief executive officer date back to the beginning of Veba, removed the managers for long-time, and made redundant hundreds of workers ? all in the investors name. That chief executive officer was concerned about the value of shareholder. The chief executive officer said ?Rewarding shareholders is the only approach to confirm that other people in the company are served also. It does not seem fine when all the jobs are in the under performing entities? (Eitemann at al, 2000).

[...] However, this tax reduction notion does not relate to few investors for instance pension funds that are not in tax category. Some businesses also exercise stock repurchase because it facilitates them to maximize leverage and shift towards a more attractive capital structure. The author then maintained that repurchase of share is a good notion if it is exercised at the right price (Rappaport, 1998) ?Value Network for Shareholders Figure Shareholders Value Network, Rapport 1998. The above diagram symbolizes the association between the value drivers and corporate objective of shareholder value creation. [...]


[...] Or it can be possible that the interviewee intended to provide that they create value for shareholders but did consider it as key corporate objective. For such firms, it appears that they exercise neither of the two approaches: stakeholders or shareholder model. However, their position appears to lead to the model of stakeholders because many of them evaluated this approach by considering it key corporate objective. We realize that if the goal of the firm in relation to shareholders is extremely clear and clearly said the firm can obtain more advantage and this would of course have some impacts on value because the market would consider it that this firm is operating on its best capability, provided that it takes value creation for shareholders as key corporate objective Shareholder value creation in the long run Shareholder value creation in fro long term has a very critical position for shareholders. [...]


[...] It is significant to concentrate on the following aspects before explaining the numerous methods of value creation. In 1998, Knight stated that the higher profits are not provide assurance for the creation shareholders value because shareholders value creation runs under following three rules that are the basic point for creation of value; 1. Firstly profitability level has not anything to do for creating value because the businesses with higher profits do not have any priority from businesses with low profits when there is need to create shareholder value Secondly, the entire teams of management begin on a point that is playing field for creating shareholders value Thirdly, different businesses confront various challenges of dissimilar nature in the creations of value. [...]


[...] Earning per share (EPS) is exercised as value creation measure in one firm also. According to the answers received from interviewees, some firms in our research employ the economic measures and they believe it to be the primary measure for value creation of shareholder. In two companies economic value added (EVA) is employed and for one of then the basic purposes of adapting EVA is also to enhance the margin; create the profitability growth reduces the capital and then Total Value Added (TVA) is operating income less the capital cost in their operating currency. [...]


[...] It was also pointed out by an interviewee that the measurement of value creation of shareholder adds in increasing shares liquidity and turnover. He also said that if the price of share is rising, then shareholders can buy or sell them with high speed. If the business performs in better way at once the market would take into high consideration that helps in increasing share price Development of measures that the companies use Today, some businesses are struggling to develop their own performance measurement indicators. [...]

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