Toward Improved Use Of Value Creation Measures In Financial Decision-Making

Abstract

In the last two decades,numerous studies have been conducted to find sources and explanations for valuecreation and the value drivers of share returns or shareholder value creationby firms. This study aimed to determinewhether more refined firm categorization and an increase in the number of variablesanalyzed would yield more robust information on value creation measures thatfinancial decision-makers can use. Fourdifferent categories of firms were compiled.For each category, 11 different internal performance measures wereregressed against two different external shareholder value creation measures. The empirical results show that differentvalue creation measures explain shareholder value creation best for differentcategories of firms. Economic-basedindicators provide higher information content than accounting-based indicatorsfor financial decision-making. Theinformation content of internal value drivers varied when different externalshareholder value indicators were used. Thisstudy provides financial decision-makers with a more specific indication of theuse of shareholder value creation measures for specific firm types.