Industry-specific determinants of shareholder value creation

Abstract

PURPOSE : Prior studies on determinants of shareholder value creation have reported conflicting and sometimes confusing results. In this study, to obtain more refined and industry-specific results regarding variables determining shareholder value creation, an analysis was performed focusing on different categories of firms or industries. DESIGN / METHODOLOGY / APPROACH : Two dependent and 11 independent variables were applied to five different industries to obtain the best set of significant value drivers of shareholder value creation for a particular industry. FINDINGS : Market value added (MVA) is a better indicator of shareholder value created compared to a market adjusted return. Accounting-based variables (EPS, ROA and NOPAT) are superior to economic-based variables (EVA and ROCE) in explaining shareholder value creation, but results differ, depending on the dependent variable chosen as shareholder value creation measure. For each industry, there is a unique set of variables that determine shareholder value creation; the industrial goods industry has seven significant value drivers, namely, EPS, NOPAT, ROCE, the Spread, EVA, EBEI and REVA, whilst for the food and beverages industry, there were only two significant value drivers (EPS and ROA). ORIGINALITY / VALUE : These findings imply that management, analysts and shareholders should, depending on the specific industry in which their firm operates, take into account a more specific set of variables when making their financial decisions, including compensation or reward structuring.