Analysis of Value Based Management and its Prevalence in the Swiss Market Index Companies on-hand from the 2012 Annual Reports
This paper provides new insights into the use of Value Based Management concepts and the extent to which economic value creation is pursued by the twenty Swiss Market Index companies.
Teboe Jason, 2013
Bachelor Thesis, Institute for Finance, School of Business FHNW
Betreuende Dozierende: Ulrich Krings
Keywords: Value Based Management, Economic Value Added, Swiss Market Index (SMI), Value Creation, Shareholder Value, Management Controlling, Management Compensation, Business Strategy
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As global capital markets become more competitive, the importance to align business strategy with the interests of shareholders expands. The past century has not only seen an increase in larger institutional shareholders but also an increase in differing management styles and approaches to create value for a company. In many cases, these approaches have failed when unclear performance targets were set and the underlying goal of value creation was not supported by a VBM approach. It is unclear how prevalent the use of VBM is among the SMI companies and what role this will play in the future.
This paper not only presents the predominant key concepts of VBM found in academic literature but also the analysis of how prevalent VBM is in the twenty SMI companies on-hand from their 2012 annual reports. Through five VBM indicators, the study answers the questions whether a company directly expressed the intent for value creation, which VBM concepts were used, if and how well these concepts were calculated and explained, and if the achievement of such concepts is linked with management compensation.
The results indicate high inconsistencies of the company’s use of the VBM indicators. Only one company (Transocean ltd) used all five indicators whereas 70% of the companies used two or fewer indicators. Twelve out of the twenty companies expressed the intent to pursue increased value for their shareholders, but only seven of these used at least one VBM concept. Five additional companies used VBM concepts but did not have a value statement. VBM concepts were used a total of nineteen times by the twelve companies. These concepts were, however, rarely explained. Only two companies offered a complete explanation of a concept. Ten of the nineteen concepts had no explanation whatsoever. The study also found that six of the twelve companies that use VBM concepts link them to management compensation. Although there were major inconsistencies in the use of VBM indicators, medium-sized companies were not only more prone to use and explain VBM concepts than any other size company but also to use and explain the calculation for their capital costs. Medium-sized companies had the second highest percent of companies that linked VBM concepts to management performance compensation.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Wirtschaftsinformatik & IT-Management