Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Shareholder Value - Essay Example

Comments (0) Cite this document
Every business exists to make a profit while selling a product or service to customers willing to pay the right price. As the business remains profitable, it survives, and if its owners are ambitious and motivated, it grows, selling more products or services in its markets, hiring more employees, or using the profits to reward its owners or buy more assets.
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95% of users find it useful
Shareholder Value
Read TextPreview

Extract of sample "Shareholder Value"

Download file to see previous pages Some strategic decisions (entering new markets, increasing sales capacity, etc.) need shareholder approval as these may require capital investments that affect profits, while most tactical marketing decisions (like advertisements, promotional campaigns, etc.) do not.
Since shareholders are after increasing the value of their investment (Shareholder Value or SHV), they want higher profits. Since profits result from how much the business sells and spends to generate those sales, it seems logical that SHV is a good framework for evaluating marketing decisions. This paper in effect analyzes the reasoning that making good and correct marketing decisions would increase profits and SHV.
Drucker (1955, p. 36) was among the first to argue that the purpose of a business is to create value for its owners by creating and keeping customers, and that marketing encompasses the entire business and must permeate all areas of the enterprise because it is what will create and keep customers.
Since then, academics and practitioners from Levitt (1960) to the American Marketing Association (AMA) have linked the marketing function with the concept of value - both to the business owners and to its customers. AMA (2004) defined marketing as "an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships (customer value) in ways that benefit the organization and its stakeholders (shareholder value)."
Marketing therefore links two areas where value is created: customer value that leads to shareholder value.
Marketing is a complex activity that aims to satisfy people outside (customers) in order to satisfy the people inside (shareholders, managers, and employees) the business, and not the other way around. Since customers are satisfied if the business makes the right strategic and tactical marketing decisions, the customers buy what the business sells, and enough profits will come to keep everyone happy, at least in theory.
Marketing decisions used to be simple and easy to make: find out what customers need, what price they are willing to pay for it, make the product, and sell it to them.
Friedman (2004) argued that the age of mass production after the War was more about selling than marketing, but as the world became affluent and globalized, customer needs and wants became more sophisticated, business competition intensified, and meeting market needs became more scientific and complex and considered not only what customers want now but also what they would want in the future (Achrol, 1991).
Thus, marketing decisions came to be classified as long-term (or strategic) and short-term (or tactical) depending on their impact on the business. Strategic marketing decisions took into account making an accurate (or close to it) prediction of what products would be demanded by customers in the future, and how much they are willing to pay for them, so that the business would not only decrease their profits and the rate at which profits are growing, but continue to compete and grow.
Strategic marketing includes long-term decisions, aside from knowing what the present market would need and want in the future, about discovering new customers for present products, deciding on which new markets to enter, how much profits each market could generate and how much of that profit the ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Shareholder Value Essay Example | Topics and Well Written Essays - 2000 words”, n.d.)
Shareholder Value Essay Example | Topics and Well Written Essays - 2000 words. Retrieved from
(Shareholder Value Essay Example | Topics and Well Written Essays - 2000 Words)
Shareholder Value Essay Example | Topics and Well Written Essays - 2000 Words.
“Shareholder Value Essay Example | Topics and Well Written Essays - 2000 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document


Corporate Social Responsibility and Shareholder Value Maximization

...? Corporate Social Responsibility and Shareholder Value Maximization 6th, September, Table of Contents Table of Contents 2 Introduction 3 Shareholders Value 3 Maximization of Shareholders Wealth 4 Factors that Affect the Shareholders and Owners Wealth 5 Importance of a Company 6 Shareholders Theory 6 Stakeholders Theory 6 Ways of Measuring Shareholders Value 7 Importance of Maximizing the Shareholders Value 8 Corporate Social Responsibility 8 Conclusion 9 Corporate Social Responsibility and Shareholder Value Maximization Introduction In the recent past, particularly over the last two decades, the ideology of maximization of shareholders value as a norm of corporate management has been under great scrutiny. The issue of whether companies...
12 Pages(3000 words)Essay

Creating Shareholder Value

... started gaining prominence in the 1980s and by the start of 21st century had become a key element in corporate governance in the US, UK, and most of leading European nations like Germany, France and Sweden; so much so that the OECD, in their document released in 1999, emphasised that firms be run first and foremost in the interest of shareholders. They further reinforced this thought in their 2004 release of OECD principles of corporate governance (OECD 2004). As the fad of focus on shareholder value began spreading, the understanding of the concept seemed to have started to erode somewhat as many executives began to focus on quarterly earnings as a key driver of their stock prices. The concept of shareholder value does not, however, imply...
7 Pages(1750 words)Term Paper

Measuring Shareholder Value

..., if they have made an investment in a stock and that stock has proven not of much return as they would have wanted, then, they are unlikely to continue holding on to that stock. Thus, this escalated demand for shareholder value has led to a lot of pressure upon finance managers of various organisations. They have to ensure that the companies are earning reasonable profits and besides that they have to come up with a very appropriate measure to shareholder value. This way, shareholders can monitor the performance of their investments. The task of getting the befitting measure for that can be an uphill one to most managers. In the recent times executives...
5 Pages(1250 words)Term Paper

Enlightened Shareholder Value

... of the company1. Directors are therefore expected to steer the operations of the company with the maximization of the shareholder’s interests as the main priority. The United Kingdom established the Company Law Review Steering Group (CLRSG) in late 1990s and mandated it to come up with a detailed review of English company law. At the end of its exercise, the CLRSG noted that the country’s legal system, like other Western jurisdictions, prefers shareholder value. The CLRSG indicated that the current legal system reflects the reality that business organizations are run in such a way that the shareholders often benefit. That is, the legal system confers upon shareholders absolute powers in the management of the local companies...
9 Pages(2250 words)Essay

Managing Shareholder Value

...e investors. For effectively planning and managing the funds, another scorecard of metrics is being developed with the provision of incentives for bettering the budgeted figures being used. All of these elements when considered individually excel with their simplicity. But when the system as a whole is looked at it turns to be complex with a number of "metrics, methods and messages" which makes the understanding of the finance executives of the shareholder value rather difficult. Hence it becomes vitally important that the CFO of any organization coordinates his efforts in designing the systems of the financial management with the CEO and the directors of the company so that the internal corporate governance is strengthened and if...
8 Pages(2000 words)Essay

Corporate Goal of Maximizing Shareholder Value

...on maximizing share holder value with a notion that this fundamental objective can ensure existence & growth of the corporations. This has worked traditionally quite well but has a conflicting relationship with another fundamental corporate objective - the corporate governance. Enhancing shareholder value cannot be stretched beyond the limits that start breaching the fundamental requirements of corporate governance. Ireland (1996. pp289) established an empirical generalization that the legal existence of the company and the shareholders is entirely separate. Although acts like Sarbanes Oxley in United States have made the leadership of the organization (CEO or CFO!!)...
5 Pages(1250 words)Essay

Enhancing Shareholder Value

... because there is no tax disadvantage to an investor to receiving dividends, and that firms can raise funds in capital markets for new investments without having to go through high issuance costs. Another school of thought believes that dividends are adverse for the average shareholder as they attract taxes and cause fiscal disadvantages. Last but not the least the third group lauds large dividends as a positive signal to shareholders that all is well. So where does the modern shareholder value satisfaction stand in relation to dividend policies This is the one of the main issues which I will review in my paper below. Secondly my research is concerned with whether corporate governance is a mechanism to enhance shareholder wealth The fear...
7 Pages(1750 words)Essay

Means of Company's Driving Superior Shareholder Value

...Critical Examination of The Present Business Environment In The Context Of The Investor And The Drive For Shareholder Value Executive Summary The aim of this paper was to study how the current business environment has become characterised by the importance of the investor and the drive for shareholder value. I began by briefly discussing what shareholder value is and how it is calculated. I also discussed a bit on how executives today have lost trust in financial measures of performance due to the inability of these measures to provide the true economic value of the firm. The managers feel that only operational measures should be used in measuring performance since these measures focus on the activities that create value...
7 Pages(1750 words)Coursework

International Business: Shareholder Value

... that the company decides to make to every single shareholder. Shareholder value is created when firms are expected to create a higher rate of return than it would be expected in a normal situation (Stout, 2012, p. 11). From a business perspective, the principles involved in the management of shareholder value are not complex. To begin with, it is critical to ensure that the firm provides lasting economic returns that are above all forms of new capital that the firms effects. In addition, the companies can endeavor to increase earned returns by the capital that has been in place for a long period. To realize these objectives, a firm must put in place three basic factors. First, the firm should seek to grow a healthy business by ensuring...
4 Pages(1000 words)Essay

Does Training Initiative and Development Process Add Value to Organisations

...). Since training focuses upon delivering shareholder value, it can enhance leaders’ and employees’ actions in the direction of manifesting the organisations strategic core competency (Becker, Huselid, & Ulrich, 2001) and value creation. Health Care Organisations Health Care Organisational Structure The literature identified that the majority of non-profit health care services are provided through the vehicle of a hospital and that most of them are structured according to a traditional bureaucratic model, where power is distributed from the top down. Two other organisational models for hospitals are the matrix or hybrid organisational model. In the matrix organisational structure, responsibilities and functions are organised around...
93 Pages(23250 words)Dissertation

The Underlying Value of Human Resource Management Activities

... People Resourcing Discuss and critically evaluate the extent to which effective training and development within an organisation can assist its people resourcing activities Many successful organisations are in continuous evaluation of their people resourcing activities to maximise the contribution of the resourcing function. They also do this to establish whether improvements could be made in the process and to demonstrate that their human resource management activities add value to their company (Taylor et. al, 2003). Effective training and development can be seen as one of the main tools used by organisations to assist in people resourcing activities such as recruitment, selection, giving equal opportunities, creating diversity, having...
11 Pages(2750 words)Literature review

To What Extent Can HRM Add Value to an Organization

The human resource management supports the companies in devising a comprehensive strategic plan by setting specific goals and focusing on their resources, strengths, weaknesses, opportunities, and threats. It is on the basis of these plans the management recruits, hires, trains and motivates the members of the staff in order to work on the same lines as described by the management. Management is, scholars opine, far more imperative in comparison with marketing, finance, advertising, and sales, because it has a direct connection with the personnel responsible for the good name and fame of an organization. The Human Resources Management function includes a variety of activities, and key among them is deciding what staffing needs you...
8 Pages(2000 words)Term Paper

HR Model That Can Measure if It Adds Value

There has been a change of approach in the way that labor is reviewed in the organization and the modern perception emphasizes viewing labor as an investment and not as a commodity or resources. In this regard, labors have started to be seen as a made of creative and innovative social being who is able to give the organization a competitive edge. (Michael 2006, p. 42)
The term human resource has been changing to broader management and the concept of human capital has been applied more often in place of human resources. Therefore the modern perception of human labor has been changing the way organization have been handling their human capital to a more liberalized way. It has been realized that having a competitive workforce c...
13 Pages(3250 words)Assignment

Strategic Alliances in the Automobile Industry - Their Impact on Brand Value

...STRATEGIC ALLIANCES IN THE AUTOMOBILE INDUSTRY: THEIR IMPACT ON BRAND VALUE Introduction: This study will cover a discussion on the nature of strategic alliances in the auteomobile industry as part of strategic management as well as their role and importance relation to brand value. The term strategic alliances refers to cooperative agreements between potential or actual competitors. Strategic alliances can range from short-term contractual arrangements in which two companies agree to cooperate on a particular task or project, such as developing a new product, to formal joint ventures in which two or more firms have equity stakes. An alternative description (Davis 1999) states that it is any form of cooperative linkage entered...
16 Pages(4000 words)Case Study

Economic Value Added as Tool for Improving Performances

To discover whether pure profits exist, take the revenue of the firm and deduct the costs of all factors of production other than capital. Then deduct the pure return on capital and any risk premium necessary to compensate the owners of capital for risks associated with its use. Anything that remains is pure profits.” Simply in economic terminology economic value added (EVA) is commercial profits reduced by opportunity costs (that is the pure return on riskless investment and the risk premium). Lipsey calls the EVA defined in this fashion as “pure profits, economic profits or, where there is no room for ambiguity, just profits”.

Investors in any company are interested in real profits that are profits r...
7 Pages(1750 words)Report

Cultural Value Orientations: German vs. Turkish

When organizational culture is discussed in the context of national culture, it is based on certain assumptions. According to Schein (2004 qt. Browaeys and Price 2008) culture can be defined as:

"...a set of basic assumptions - shared solutions to universal problems of external adaptation (how to survive) and internal integration (how to stay together) - which have evolved over time and are handed down from one generation to the next".

External adaptation here refers to factors or culture which the management can control while internal integration means the relationship which binds them to the group. In this context management styles and approaches are often influenced by the cultural value orientation - that...
7 Pages(1750 words)Case Study

A Discussion on Fair Value Measurement

...As a result of the current financial crisis, will the IASB totally or partially remove fair value measurement options or requirements from accountingstandards? Introduction Among the accounting standards issued (and will be issued) by the Financial Accounting Standards Board (FASB) for the United States generally accepted accounting principles (US GAAP) and the International Accounting Standards Board (IASB) for the International Financial Reporting Standards (IFRS), nothing has been more scrutinised and criticised than fair value measurement. In fact, the focus on this measurement has been increasing for the past years or so. The IASB, itself, has been working double-time to improve the fair value measurement standards. In 2006...
8 Pages(2000 words)Term Paper

Public Footpaths Value

... that grown out there. In general, the two footpaths were closed because they were not in use and were turned into private farms. Conclusion Public footpaths have important value from economic, tourism and transport point of view. The estimates made by Wales Tourist Board have shown that “the annual economic value of the path network” is $ 548 million (Jenner, 2003, p.54). This revelation also points to the possibility of meeting the maintenance cost of the public footpaths from this revenue alone, if it is properly tapped. Almost eighty percent of the footpath in the area of study (Landyfaelog village) was not maintained and was obstructed by trees, bulb wires and bushy plants. These footpaths were not been in used for years... Walking...
7 Pages(1750 words)Coursework

Value Management Study for TechWatt Corporation

...Value Management Study for TechWatt Corporation Executive Summary This Report focuses on TechWatt Corporation’s request for a VM study regarding itsplanned expansion program. The firm wants to build a regional headquarters, and has asked this consulting firm to provide a VM study wherein functional benefits of the construction are emphasized. A background of the project is first provided and analyzed. The members of the study group are then formed, and the agenda, the techniques to be used, and problems to be discussed, are formulated. Functional analyses in the construction of the project is of primary objective of the study. The VM study group will come up with a conclusion and recommendations to the CEO of TechWatt Corporation...
7 Pages(1750 words)Case Study

Failure of Shareholder Value

... the realization of shareholder value for most companies. Background of the issue Despite its perceived role in stimulating business growth, shareholder value remains contentious in out-of-business quarters (Kristie, 2012). Whereas the corporate executives’ penchant for maximizing the share price lacks any historical or legal basis, the refusal of shareholder value in a business organization may as well spell the end of the company’s operations. Regardless of the reasoning, Cole, Sturgess and Brown (2013) have argued that there is no empirical evidence linking corporate focus on shareholder value to an improvement of the status of the economy and or the society. Shareholder value is said to have begun in second half of the 20th century...
8 Pages(2000 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Shareholder Value for FREE!

Contact Us