New Metrics for Value-Based Management: Enhancement of Performance Measurement and Empirical Evidence on Value-Relevance (Unternehmensführung & Controlling)

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. 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. Cover......Page 1 New Metrics for Value-Based Management......Page 2 Unternehmensführung & Controlling......Page 3 ISBN 3834918695......Page 5 Foreword......Page 7 Acknowledgments......Page 9 List of Contents......Page 10 List of Figures......Page 13 List of Tables......Page 15 Abbreviations......Page 17 Symbols......Page 19 1 Introduction......Page 20 2 Fundamentals......Page 31 3 Development of New Value-Based Metrics......Page 92 4 Applied Methods for the Empirical Research......Page 123 5 Results......Page 166 6 Discussion......Page 205 References......Page 208 Annette Holler introduces two new depreciation-adjusted value metrics. Furthermore, a case study illustrates the depreciation-related bias. A regression analysis adds to previous evidence on associations of value creation with stock returns and firm values.