The Metrics War

Daniela Venanzi

Chapter Chapter 3 in Financial Performance Measures and Value Creation: the State of the Art, 2012, pp 33-60 from Springer

Abstract: Abstract Consulting firms have been battling for the last two decades over the superiority of their value metrics, charging that competitors’ measures have flaws that compromise their evaluation ability. On the other hand, a growing number of firms have adopted various economic measures, moving from one metric to the other over the years, and often abandoning all of them in favor of traditional accounting measures. However, despite the increasing emphasis on these value measures, no definitive evidence exists of which metric works better than others, and research on the extent to which any of them is superior to the traditional accounting measures is limited and not yet univocal. In this chapter, we analyze the different economic value measures, by adopting different perspectives, from which their respective effectiveness can be evaluated: association with market financial performance, consistency with the discounted cash flow (DCF) approach in measuring value creation, and implications on managerial incentives. Metrics are compared from both a theoretical and an empirical standpoint, providing an updated synthesis of the main international evidence on their effectiveness.

Keywords: Metrics war; Correlation between economic value measure and stock return; Firm value in terms of EVA and CFROI; Superior SVA for managerial compensation; Fade factor; Empirical evidence (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbrcp:978-88-470-2451-9_3

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DOI: 10.1007/978-88-470-2451-9_3

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