Executive Corporate Finance: The Business of enhancing shareholder value

Chapter 2. Shareholder value maximization

Introduction

Over the past two decades, the global capital market has experienced revolutionary developments in information technology and the proliferation of information that have intensified global competition, thus increasing pressure on the CEO to strengthen shareholder value. Creating shareholder value depends on bringing about a positive pattern of cash-flows in excess of investor expectations. In order to achieve this, many leading companies have linked corporate strategy directly to value, and changed management compensation to value creation.

“Prosperity requires people to abandon old industries and old ways of doing things, and bet on new ones and new ways.”^[1]

We can classify management decisions ...