Professional Documents
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Eventhough most of company accepted the idea of shareholder value as goal or objective, the
implementation of the shareholder value is very hard due to the difference of time horizon of the
shareholder (Johnson, 2004), balancing between shareholder’s interest (Miller, 1987), agency problem
and the rise of stakeholder value believer.
Despite the ambiguous nature of the definition, shareholder value also have different interpretation
whether it is use as a strategy or an outcome/goal of a company. According to Welch (2009),
shareholder value is an outcome of successful strategies not strategy itself, because shareholder value
is not the thing that drives one company business. Tirole (2001) also agree that shareholder value is a
mission to achieve by the management of the company.
1
http://en.academic.ru/dic.nsf/enwiki/632122
2
http://en.wikipedia.org/wiki/Shareholder_value
“corporate managers should act exclusively in the economic interests of shareholders” and that
“the best means to this end, the pursuit of aggregate social welfare, is to make corporate
managers strongly accountable to shareholder interests” (Hansmann and Kraakman, 2000).
Despite the clear statement that the manager of the company have to serve the interest of
shareholder, sometimes the management of the company having difficulty in balancing one interest
to the other. Loderer, et al. (n.d.) confirm the confusion of the manager through their paper, they said
that the larger the number of shareholder, the more heterogenous the interest to serve. Moreover, the
manger of the firm often has their own purpose to serve (Agency Problem).
5. Conclusion
In conclusion, shareholder value is the value for shareholder for investing in the company,
shareholder is the residual claimanth of the wealth of the company after the debt is paid. The
shareholder value is a goal or objective of the company not the strategy of the company.
The first problem of the shareholder value is to balance the long term and short term objective of the
company. In the case of confusion, the management should always go with the long term objective of
the company. Enron Corp. And Parmalat are the example if management only focus on the short run
basis.
The next problem is how to balance or meet the interest of shareholder. In this case the confusion
happen when there are more than one interests, in these case manager will have a difficulty of
determining which shareholder value has to meet first. In most cases the manager will meet the
majority interest because their job security is closely related to how they satisfy the majority interest
The agency problem relate closely to the creation or destruction of shareholder value. To reconcile the
problem the company have to make renumeration base on maximizing the shareholder value, that way
it will align the interest of shareholder and the management.
The rise of stakeholder view make the job to maximize shareholder value even more harder. The
stakeholder value practicioner argue that as the social entity the company also have social
responsibility. To reconcile this problem manager can set aside the corporate social responsibility
fund.
The most widely used shareholder value metric is economic value added. But the easiest measure of
shareholder value is market value added and total shareholder return because the data is readily
available in the market and do not need complicated computation.
Reference
1. Blair, M.M., 1995, Ownership and Control: Rethinking Corporate Governance for the
Twenty-First Century, Washington, DC, Brookings Institute.
2. Bogoslaw, david, 2009. Shareholder Value: Time for a Longer View?. Available at:
http://www.businessweek.com/investor/content/mar2009/pi20090317_247202.htm
6. Hansmann, H. and R. Kraakman, 2000, “The End of History for Corporate Law,” Yale Law
School, New York University, and Harvard Law School Working Paper.
7. Haslam, C., 2010. Lecture 2: Seminar 2, Accounting for shareholder value, 7BSP0177 -
Financial Markets (Fim). Hertfordshire University, unpublished.
8. Johnson, W.T., 2004, “Predictable Investment Horizons and Wealth Transfers among Mutual
Fund Shareholders,”Journal of Finance 59, 1979-2012.
11. Rappaport,A (1999) Creating shareholder value: a guide to managers and investors, Free
Press
14. Welch, Jack. 2009. Interview With Financial Times, 12th of March 2009.
15. Zingales, L., 2000, “In Search of New Foundations,” Journal of Finance 55, 1623-1653.
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