Recognizing Macroeconomic Fluctuations in Value Based Management

Journal of Applied Corporate Finance, Vol. 15, No. 4, 2003

Research Institute of Industrial Economics Working Paper No. 574

22 Pages Posted: 30 Aug 2007

See all articles by Lars Oxelheim

Lars Oxelheim

Research Institute of Industrial Economics (IFN); University of Agder; Knut Wicksell Center for Financial Studies, Lund University

Clas Wihlborg

Chapman University; University West

Abstract

Value Based Management (VBM) has become a common tool for ex ante and ex post evaluation of corporate strategies and projects from the perspective of shareholder value maximization (SVM). VBM-frameworks are designed to support investment and divestment decisions, ex post evaluation of management and their major strategic decisions, and bonus-systems. Traditional VBM frameworks make no distinction between sources of temporary changes in performance, and sources of performance reflecting the intrinsic competitiveness of the firm. Temporary changes in performance are often caused by macroeconomic fluctuations. In this article we develop an approach for "filtering" the impact of macroeconomic fluctuations out of measures of performance in order for management to obtain better information for purposes of investment, divestment, and exposure management decisions. We focus on filtering for purposes of performance assessment employed in compensation schemes. A case study illustrates the approach, and shows the potential magnitude of effects from macroeconomic events.

Keywords: Value Based Management (VBM) , Shareholder Value Analysis (SVA), Economic Value Added (EVA), Performance Measurement, Macroeconomic Fluctuations, Bonus System

JEL Classification: D81, G31, M22

Suggested Citation

Oxelheim, Lars and Wihlborg, Clas, Recognizing Macroeconomic Fluctuations in Value Based Management. Journal of Applied Corporate Finance, Vol. 15, No. 4, 2003, Research Institute of Industrial Economics Working Paper No. 574, Available at SSRN: https://ssrn.com/abstract=1010678

Lars Oxelheim (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

P.O. Box 55665
SE-10215 Stockholm
Sweden
+46 8 665 4527 (Phone)
+46 8 665 4599 (Fax)

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

Knut Wicksell Center for Financial Studies, Lund University ( email )

P.O.Box 7080
S-220 07 Lund
Sweden
+46462228744 (Phone)

Clas Wihlborg

Chapman University ( email )

333 N. Glassell
Orange, CA 92866
United States
+17147447630 (Phone)

University West ( email )

Trollhättan, 46186
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
318
Abstract Views
1,259
rank
114,581
PlumX Metrics