Recognizing Macroeconomic Fluctuations in Value Based Management
AbstractValue 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.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 574.
Length: 21 pages
Date of creation: 08 Feb 2002
Date of revision:
Publication status: Published in Journal of Applied Corporate Finance, 2003, pages 104-110.
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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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More information through EDIRC
Value Based Management (VBM); Shareholder Value Analysis (SVA); Economic Value Added (EVA); Performance Measurement; Macroeconomic Fluctuations; Bonus System;
Other versions of this item:
- Lars Oxelheim & Clas Wihlborg, 2003. "Recognizing Macroeconomic Fluctuations In Value Based Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 15(4), pages 104-110.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
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- Lars Oxelheim & Clas Wihlborg, 1995. "Measuring macroeconomic exposure: The case of Volvo Cars," European Financial Management, European Financial Management Association, vol. 1(3), pages 241-263.
- Andrén, Niclas & Oxelheim, Lars, 2002.
"Exchange-Rate and Interest-Rate Driven Competitive Advantages in the EMU,"
Working Paper Series
2001/8, Lund University, Institute of Economic Research.
- Andrén, Niclas & Oxelheim, Lars, 2002. "Exchange-Rate and Interest-Rate Driven Competitive Advantages in the EMU," Working Paper Series 576, Research Institute of Industrial Economics.
- Oxelheim, Lars & Wihlborg, Clas & Zhang, Jianhua, 2008.
"Executive Compensation and Macroeconomic Fluctuations,"
Working Papers in Economics
301, University of Gothenburg, Department of Economics.
- Oxelheim, Lars & Wihlborg, Clas & Zhang, Jianhoa, 2008. "Executive Compensation and Macroeconomic Fluctuations," Working Paper Series 746, Research Institute of Industrial Economics.
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