How to measure the shareholder value of banks?
The shareholder value approach and its aim of shareholder value maximization is currently the most important comprehensive management tool in use. For banks, the shareholder value approach is not only an important strategic management tool; its overarching objective of shareholder value maximization is vital for banks to exist. Unlike non-banks, banks are required to secure their business with equity capital. Consequently, the provision of equity capital is conditional for the growth of banks’ business volume and therefore is a highly critical function for banks. As higher shareholder value eases access to equity capital, a shareholder value orientation is especially important for banks. In addition, the equity returns of European banks and German banks in particular, are low relative to international banks, and this, coupled with the increasing competition and globalization in banking, makes it even more important to take action and to become more strongly oriented towards shareholders’ interests. Despite its relevance to banks, the shareholder value approach has only recently gained importance in the banking industry.
KeywordsCash Flow Business Unit Capital Asset Price Model Free Cash Flow Residual Income
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