New Metrics for Value-Based Management

Value-Based Management, a widely applied reference for strategic management, aims at maximizing sustainable shareholder value creation. However, respective accounting metrics to measure the firm's wealth creation, such as residual income and Economic Value Added (EVA®), are distorted by accounting depreciation, implying inconsistent investment disincentives. Annette Holler introduces two new depreciation-adjusted value metrics and illustrates the depreciation-related bias in a case study. Finally, a regression analysis adds to previous evidence on associations between value creation and stock returns as well as firm values.

Préface
Two new depreciation-adjusted value metrics

Auteur
Dr. Annette Holler completed her doctoral thesis under the supervision of Prof. Dr. Dirk Schiereck at the European Business School (ebs) at Oestrich-Winkel, Endowed Chair of Banking and Finance. She works as a strategic management consultant.

Résumé
Still today, the vast majority of the German DAX 30 corporations are explicitly com- ted to the shareholder value idea. However, the stock return to shareholders is an inappropriate measure for internal performance management, so that companies revert to so-called Value-Based Management Systems. These systems derive accounti- based performance measures, which shall quantify whether and how much shareholder value has been generated by the management over a specific period (overall and by business unit). Data applied for calculating the performance measure has to be publicly available and, preferably, also separately disclosed, to allow capital market participants to project results of the performance measure on the stock price. Various metrics (net earnings, residual income, EVA, REVA), which also demonstrated some correlation with stock returns in empirical studies, have been implemented for performance measurement in the past, but these measures still show methodological deficits and also the correlation with the stock performance can still be increased considerably. Also in this respect, the study of Annette Holler makes a substantial contribution, demonstrating that two new metrics (CRI, CEVA) show superior results both methodologically and in the empirical test. To date, such an examination of various yet existing and newly developed performance measures has not been known to me. Hence, the dissertation of Ms. Holler extends, in an amazing way, preceding academic research.

Contenu
Fundamentals.- Development of New Value-Based Metrics.- Applied Methods for the Empirical Research.- Results.- Discussion.