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The Metrics War

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Financial Performance Measures and Value Creation: the State of the Art

Part of the book series: SpringerBriefs in Business ((BRIEFSBUSINESS))

Abstract

Consulting firms have been battling for the last two decades over the superiority of their value metrics, charging that competitors’ measures have flaws that compromise their evaluation ability. On the other hand, a growing number of firms have adopted various economic measures, moving from one metric to the other over the years, and often abandoning all of them in favor of traditional accounting measures. However, despite the increasing emphasis on these value measures, no definitive evidence exists of which metric works better than others, and research on the extent to which any of them is superior to the traditional accounting measures is limited and not yet univocal. In this chapter, we analyze the different economic value measures, by adopting different perspectives, from which their respective effectiveness can be evaluated: association with market financial performance, consistency with the discounted cash flow (DCF) approach in measuring value creation, and implications on managerial incentives. Metrics are compared from both a theoretical and an empirical standpoint, providing an updated synthesis of the main international evidence on their effectiveness.

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Notes

  1. 1.

    See for more details www.credit-suisse.com/holtemethodology.

  2. 2.

    Analyst expectations are used because they are considered a good proxy for the expectations of investors and management.

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Authors and Affiliations

  1. Department of Business and Law, University of Rome III, Rome, Italy

    Daniela Venanzi

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  1. Daniela Venanzi
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Venanzi, D. (2012). The Metrics War. In: Financial Performance Measures and Value Creation: the State of the Art. SpringerBriefs in Business. Springer, Milano. https://doi.org/10.1007/978-88-470-2451-9_3

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