Shareholder value
As shareholder value (German shareholder value ) is in the economics of the market value of equity referred to by the company. It corresponds to the company value , measured by the quoted market value of the company's shares . The " shareholder -Value Approach" is a by Alfred Rappaport developed business management concept that corporate life as a series of payments ( cash flows considered), analogous to the of (property) investment resulting series of payments . The valuation of the company is determined on the basis of the so-called free cash flows . Shareholder value results from the on the valuation date discounted free cash flows less the fair value of the debt (ie, for. As bank liabilities ).
The asset to a shareholder (shareholder, English shareholder ) of a stock company has, consists of the market value of the corresponding share, multiplied by the number of shares held. A corporate policy aimed at increasing shareholder value therefore aims to increase the share price. If the aim is not only to increase the stock market price in the short term , the strategy also includes goals such as the long-term optimization of the company's competitiveness and profitability - this goes hand in hand with the fact that share prices generated on the capital market always factor in the future expectations of market participants. The shareholder value principle is used today by companies around the world.
origin
The shareholder value approach goes back to the 1986 book Creating Shareholder Value by Alfred Rappaport . According to this, the company management has to act in the interests of the shareholders. Your goal is to maximize long-term company value by maximizing profits and increasing the return on equity . The required minimum rate of return on equity dominates other issues. Because the term has come under massive criticism in the meantime, it has been replaced both in specialist literature and in companies by Value Based View .
Relationship with corporate governance
Shareholder value can be viewed as the result of corporate governance. Various factors have an influence, as Rappaport explained in 1999. What is remarkable is that management decisions only have an indirect influence on the shareholder value that is actually created.
In particular, the layer of the evaluation component can intensify or cancel out the effects of the management decisions made. This is where the criticism of the calculation of shareholder value (see below) comes in.
The Robust Steps are actions that are believed to be effective in making a difference to the SHV. This also shows that shareholder value is an approach that is compatible with stakeholder value .
In its main variants, the shareholder value is after the
- Discounted cash flow method as the sum of the discounted cash flows minus the debt capital value, or the
- Capitalized earnings method calculated as the sum of discounted future profits and distributions.
Calculation of the shareholder value according to the 1st main variant mentioned above:
- The free cash flows (FCF) of the observed years (t) are discounted with (1+ WACC ) and then added up.
- This sum is added up with the sum of the residual value (estimated free cash flow for the period after the years under review), discounted using the same method, as well as the value of the assets not required for operations (securities investments, speculative goods, etc.).
- If you subtract the company's borrowed capital from this sum, you get the shareholder value.
Applications
The cost of capital can be determined with the discount factors. Borrowing costs can be determined from capital market data. The Capital Asset Pricing Model is suitable for determining the cost of equity. The risk premium is 5% in the USA and 4% in Europe. Typical values for beta are around 1. Equity beta also takes the leverage effect into account .
The specialist literature emphasizes that an essential achievement of the concept is that it reduces all business activities to their effects on the free cash flow and that the time of payment is taken into account by discounting the free cash flow. The definition of shareholder value already shows that
- the level of free cash flow and its development are a decisive criterion for the sustainability of a company and
- the financing structure of a company also influences shareholder value.
Since these variables are the subject of long-term financial planning, it becomes clear how interlinked operational corporate management on the one hand and financial management on the other.
Intrinsic company value and market value
Often the idea of a value orientation is equated with that of a capital market orientation. However, shareholder value concepts in the sense of an orientation of corporate policy towards the (fundamental) company value are based on much less restrictive assumptions than a shareholder value concept in the sense of capital market orientation. Orientation towards the market value as a target requires that the market value and the fundamental company value match. In fact, however, many empirical studies on the efficiency of the capital market show that there are various valuation anomalies and that the fundamentally appropriate value (as a sensible target for value-oriented management) can deviate from the current market value. The reasons for this include a. in the area of investor psychological failure investigated by behavioral finance research. Also are information asymmetries observed: the best available (corporate) data is used, while the capital market is only partially informed For the calculation of fundamental fair enterprise value.
Methodical criticism
Methodological points of criticism relate to:
- Inadequacies in the determination of company values and especially the cost of capital in an imperfect capital market ( cost of capital ),
- the consideration of incentive problems of the management, which only congruently with very specific objectives, d. H. acts in the interests of the owner.
Content criticism
Critics reject the focus on company value. A company's equity providers are not the only stakeholder group of a company. When making business decisions, potential impacts on other stakeholders , such as employees, customers, the public and the environment, should also be considered. The business ethicist Peter Ulrich advocates the thesis that the shareholder value approach is “not justifiable in terms of corporate ethics” and is unsuitable as a basis for a corporate philosophy. It is important "to take into account the legitimate demands of all stakeholders in a fair, balanced way", that is, in addition to the shareholders, also "the employees, the suppliers, customers and the entire social environment". This criticism has led to alternative concepts, such as the holistic management system Balanced Scorecard .
literature
- Rappaport, Alfred: Shareholder Value . Schäffer-Poeschel Verlag Stuttgart 1999, ISBN 3791013742
- Koslowski, Peter (Ed.): Shareholder Value and the Criteria of Corporate Success , Heidelberg (Physica-Verlag) 1999.
- Wellner, Kai-Uwe: Shareholder Value and its further development to the Market Adapted Shareholder Value Approach . Lines of development, problems and solution approaches of a shareholder value-oriented corporate management, Tectum Verlag 2001, ISBN 3-8288-8281-1
- Grötker, Ralf: The new game. The thing about shareholder value: where it comes from. And where it leads to. In: brand eins , 3/8/2006. Pp. 73-79, Hamburg 2006, ISSN 1438-9339
- Rauschenberger, Reto: Sustainable Shareholder Value. Paul Haupt Verlag, Zurich 2002, ISBN 3-258-06445-8
- Figge, F. & Hahn, T .: Environmental Shareholder Value Matrix. Conception, application and calculation. Lüneburg: Center for Sustainability Management, 2002 CSM Lüneburg (PDF; 224 kB)
Web links
- manager-magazin.de - Fredmund Malik: Criticism of the public discussion about shareholder value
- manager-magazin.de - Fredmund Malik: Criticism of the concept of shareholder value
- brandeins.de - Grötker, Ralf: The new game. The thing about shareholder value: where it comes from. And where it leads to.
Individual evidence
- ↑ Heinz-J. Bontrup: Lohn und Profit: Volks- und Betriebswirtschaftliche Grundzüge , Munich, Oldenbourg, 2nd edition, 2008, p. 72.
- ↑ see Coenenberg / Salfeld (2003), Wertorientierte Unternehmensführung. From strategy draft to implementation , Schäffer-Poeschel , Gleißner (2004), Future Value - 12 modules for strategic value-oriented corporate management , Gabler Verlag and Töpfer (2000), The Management of Value Drivers , Frankfurter Allgemeine Zeitung .
- ↑ "Companies are not allowed to maximize profits" - Interview by DAS INVESTMENT.COM , July 13, 2009