MEASURES OF SHARE HOLDERS’ VALUE CREATION : AN ASSESSMENT

Abstract

Different measures have been employed by different scholars for the measurement of shareholders’ value creation. But none of these is free from limitations. A modest attempt has been made in the study to measure this value actually from shareholders’ point of view using a new methodology. It is proposed that instead of traditionally computing MV/BV, EVA,MVAor SVAthe shareholders’ value creation should simply be calculated as: Market value of equity multiplied by (Shareholders’ return – Ke). Here shareholders’ return should be determined as the long-term return on equity on the discounted cash flow basis and Ke should be calculated as usual by estimating â from security market line, of course, after the eliminating short-term volatilities in share prices. Empirically it is observed that this proposed conceptually sound method is totally different from other existing methods of value creation.