A methodology to measure shareholder value orientation and shareholder value creation aimed at providing a research basis to investigate the link between both magnitudes

Stephan Hecking ()
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Stephan Hecking: Departament d'Economia de l'Empresa, Universitat Autònoma de Barcelona.

No 301, Working Papers from Departament Empresa, Universitat Autònoma de Barcelona

Abstract: Does shareholder value orientation lead to shareholder value creation? This article proposes methods to quantify both, shareholder value orientation and shareholder value creation. Through the application of these models it is possible to quantify both dimensions and examine statistically in how far shareholder value orientation explains shareholder value creation.The scoring model developed in this paper allo ws quantifying the orientation of managers towards the objective to maximize wealth of shareholders. The method evaluates information that comes from the companies and scores the value orientation in a scale from 0 to 10 points. Analytically the variable value orientation is operationalized expressing it as the general attitude of managers toward the objective of value creation, investment policy and behavior, flexibility and further eight value drivers. The value creation model works with market data such as stock prices and dividend payments. Both methods where applied to a sample of 38 blue chip companies: 32 firms belonged to the share index IBEX 35 on July 1st, 1999, one company represents the “new economy” listed in the Spanish New Market as per July 1 st,2001, and 5 European multinational groups formed part of the EuroStoxx 50 index also on July 1 st, 2001. The research period comprised the financial years 1998, 1999, and 2000. A regression analysis showed that between 15.9% and 23.4% of shareholder value creation can be explained by shareholder value orientation.

Keywords: shareholder value orientation; shareholder value creation; evaluation methodology; shareholder value variables (search for similar items in EconPapers)
Pages: 48 pages
Date: 2002-10, Revised 2003-02
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Published in Working Papers at the Department of Business, February 2003 pages 1-48

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