Methods of Value-Based Management at the Commercial Bank

Journal of Corporate Finance Research, Forthcoming

Posted: 15 May 2015

See all articles by Elvina A. Frolova

Elvina A. Frolova

Paris School of Economics (PSE); National Research University Higher School of Economics

Date Written: April 14, 2015

Abstract

English Abstract: This paper reviews the theory of value-based management, classification of value-based management models and the main value-based management methods at the commercial bank. It is shown that value-based management models can be classified depending on: 1) used information; 2) measures of performance; 3) valuation horizon. First, we present key value drivers-based approach. In order to effectively manage shareholders’ value management should be based on key value drivers which are the main components of shareholder value and key performance indicators. In addition, we review an alternative approach based on intelligent management systems oriented to risk management. The paper reviews the main international acts, regulating risk-management (FERMA Risk management standard, COSO Enterprise risk management-integrated framework, Basel II and Basel III). Fundamentally, value-based management methods are based on integration of traditional DuPont models and discounted сash flow-oriented approaches (DCF). We then analyze approaches to analysis of changes in welfare of company owners (Total Shareholder Return, TSR; Total Business Return, TBR). If TSR or TBR exceeds cost of equity, than during the reporting period there was an increase in bank value. In addition, we consider models of economic value added (EVA) and cash flow return on investment (CFROI). Proposed methods can be developed in interests of bank management tasks in the midterm.

Russian Abstract: В работе рассматриваются различные подходы к управлению стоимостью банка. Представлен подход на основе определения и управления ключевыми факторами стоимости. Обзорно представлены подходы проектирования интеллектуальной системы управления с ориентированностью на риск-менеджмент. В работе рассмотрены модели анализа изменения благосостояния собственников компании (TSR, TBR), модели добавленной стоимости (EVA), внутренней нормы доходности (CFROI).

Keywords: commercial bank, value, key value drivers, key performance indicators, value-based management

JEL Classification: G21, G32

Suggested Citation

Frolova, Elvina A., Methods of Value-Based Management at the Commercial Bank (April 14, 2015). Journal of Corporate Finance Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2606537

Elvina A. Frolova (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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