Shareholder Value

Company performance is often measured by its financial results. In the circumstances of financialisation, managers often struggle delivering satisfactory financial results to shareholders. As competition is getting fierce in each industry and share price bubble, companies find it difficult trying to meet the requirements of its shareholders. However, reckless pursuit of shareholders value might damage company’s strategy.

This essay will explore to what degree companies pursue shareholder value and how it might distort a company’s strategy. It begins by providing what actually shareholder value means. It then follows by how it is normally expressed in terms of financial measurement. Next, comparison between arguments for and against companies pursuing shareholders will be examined with examples. Then, examples of shareholder value distorting and supporting companies’ strategy are investigated. Finally, conclusions will be drawn such that neither pursuing absolute shareholder value nor ignoring both distorts company’s strategy and companies will have to find an appropriate point which can satisfy both shareholder and company’s goal.

Froud et al. (2000) argue that the concept of shareholder value can not be precisely defined and it is a loose rhetoric. However, we can have a look at general view towards the concept. Shareholder value is the value which can attribute t the shareholders of a company. It corresponds to the market value of the shares and other hybrid instruments which can be converted to shares. It can include marginal interests other companies and any cash and marketable securities, however, excludes any other claims that debt holders may have on the company (Keong, 2002)

Company performance can be easily visualised by various accounting figures, such as return on investment (ROI), or return on equity (ROE) etc. Traditionally, values of shareholders were measured with price-earnings ratio (P/E). However, Rapport (2000) argues that accounting...