Accounting: Shareholder Value
Summary
In recent decades ,the phenomenon that a lot of companies focus on increasing the shareholder value has aroused wide concern among various circles. In view of this issue, creating shareholder value maybe is a main point to allow the company to achieve success in their marketplace.
According to Alfred Rappaport , there are 10 ways that can create shareholder value.
The first one is ‘Do not manage earnings or provide earnings guidance’ .A lot of companies are keen on reducing the spend of their expenditure because they want to achieve the net profit . Companies use the accounting approach to create the shareholder value. Also , many companies will refuse or reduce the cost of investment so that the short term earning can increase .
The second ,third and fourth rules claim that when companies need to make the decision which is about strategic ,making acquisition and trading the assets ,companies had better regard the expected value as the prime factor .Even though these actions will lower the near term earnings. Also, if companies are facing some investment plans or opportunities in which they think that these are not reliable, they need to forgo these actions to avoid making value destroying investments .
The fifth rule suggests that if companies do not have any good investment plans , companies can return the cash to the shareholders by distributing the interest ,dividends and repurchasing the stock . This can attract the long term supporters of the companies to create the long term value .
The sixth, seventh and eighth rules suggest that rewarding to CEOs, senior executives, middle managers and frontline employees is a good way to create shareholder value .Providing the better payment system to them can give the incentive to the executives to motivate them .
The ninth rule claims that executives should bear the same level risks with the shareholders. It means when the shareholders bear $1000 risks ,the senior executives also have to bear
In recent decades ,the phenomenon that a lot of companies focus on increasing the shareholder value has aroused wide concern among various circles. In view of this issue, creating shareholder value maybe is a main point to allow the company to achieve success in their marketplace.
According to Alfred Rappaport , there are 10 ways that can create shareholder value.
The first one is ‘Do not manage earnings or provide earnings guidance’ .A lot of companies are keen on reducing the spend of their expenditure because they want to achieve the net profit . Companies use the accounting approach to create the shareholder value. Also , many companies will refuse or reduce the cost of investment so that the short term earning can increase .
The second ,third and fourth rules claim that when companies need to make the decision which is about strategic ,making acquisition and trading the assets ,companies had better regard the expected value as the prime factor .Even though these actions will lower the near term earnings. Also, if companies are facing some investment plans or opportunities in which they think that these are not reliable, they need to forgo these actions to avoid making value destroying investments .
The fifth rule suggests that if companies do not have any good investment plans , companies can return the cash to the shareholders by distributing the interest ,dividends and repurchasing the stock . This can attract the long term supporters of the companies to create the long term value .
The sixth, seventh and eighth rules suggest that rewarding to CEOs, senior executives, middle managers and frontline employees is a good way to create shareholder value .Providing the better payment system to them can give the incentive to the executives to motivate them .
The ninth rule claims that executives should bear the same level risks with the shareholders. It means when the shareholders bear $1000 risks ,the senior executives also have to bear
References: William Lazonick & Mary O 'sullivan (2010). Maximizing shareholder value: a new ideology for corporate governance . Economy and Society, 29 13-35. Thomas Clarke (September 2005). Accounting for Enron: shareholder value and stakeholder interests . Corporate Governance: An International Review, 13 (5), 598–612. Rappaport A (September 2006). 10 ways to create shareholder value. Harv Bus Rev. ;84(9):66-77