Working Paper No. 574

Recognizing Macroeconomic Fluctuations in Value Based Management

Publicerad: January 30, 2002Antal sidor: 21Nyckelord: Value Based Management (VBM) ; Shareholder Value Analysis (SVA); Economic Value Added (EVA); Performance Measurement; Macroeconomic Fluctuations; Bonus SystemJEL-koder: D81; G31; M22

Recognizing Macroeconomic Fluctuations in Value Based Management Lars Oxelheim and Clas Wihlborg


Value Based Management (VBM) has become a common tool for ex ante and ex post evaluation of corporate strategies and projects from the perspective of shareholder value maximization (SVM). VBM-frameworks are designed to support investment and divestment decisions, ex post evaluation of management and their major strategic decisions, and bonus-systems. Traditional VBM frameworks make no distinction between sources of temporary changes in performance, and sources of performance reflecting the intrinsic competitiveness of the firm. Temporary changes in performance are often caused by macroeconomic fluctuations. In this article we develop an approach for “filtering” the impact of macroeconomic fluctuations out of measures of performance in order for management to obtain better information for purposes of investment, divestment, and exposure management decisions. We focus on filtering for purposes of performance assessment employed in compensation schemes. A case study illustrates the approach, and shows the potential magnitude of effects from macroeconomic events.

Lars Oxelheim

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