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The Metrics War

In: Financial Performance Measures and Value Creation: the State of the Art

Author

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  • Daniela Venanzi

    (University of Rome III)

Abstract

Consulting firms have been battling for the last two decades over the superiority of their value metrics, charging that competitors’ measures have flaws that compromise their evaluation ability. On the other hand, a growing number of firms have adopted various economic measures, moving from one metric to the other over the years, and often abandoning all of them in favor of traditional accounting measures. However, despite the increasing emphasis on these value measures, no definitive evidence exists of which metric works better than others, and research on the extent to which any of them is superior to the traditional accounting measures is limited and not yet univocal. In this chapter, we analyze the different economic value measures, by adopting different perspectives, from which their respective effectiveness can be evaluated: association with market financial performance, consistency with the discounted cash flow (DCF) approach in measuring value creation, and implications on managerial incentives. Metrics are compared from both a theoretical and an empirical standpoint, providing an updated synthesis of the main international evidence on their effectiveness.

Suggested Citation

  • Daniela Venanzi, 2012. "The Metrics War," SpringerBriefs in Business, in: Financial Performance Measures and Value Creation: the State of the Art, chapter 0, pages 33-60, Springer.
    • Handle: RePEc:spr:spbrcp:978-88-470-2451-9_3
    DOI: 10.1007/978-88-470-2451-9_3
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