Links Between Net Present Value and Shareholder Value from a Business Economics Perspective
AbstractOne of the oft-quoted theorems of finance is that decision making based on net present value will lead to the maximisation of shareholder value. The study analyses the reality background of this theorem within the disciplinary borders of business economics. Since finance is based directly on the bases of microeconomics, the study touches upon the presentation of the different disciplinary frames of business economics and microeconomics. The paper demonstrates that the economic content of shareholder value of a firm calculated from its business value and the project’s net present value fundamentally differ from one another. With their summing up, in general cases, no index emerges with meaningful economic content. Moreover, only in exceptional cases does the ranking based on the net present value lead to the maximization of the shareholder value.
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Bibliographic InfoArticle provided by Faculty of Economics, University of Miskolc in its journal Theory Methodology Practice (TMP).
Volume (Year): 8 (2012)
Issue (Month): 02 ()
business economics; capital budgeting decisions; net present value; shareholder value;
Find related papers by JEL classification:
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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