Shareholder value and Procyclical: Difference between pages

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imported>Doug Williamson
(Link with Total shareholder return page.)
 
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Literally, the value accruing to shareholders.
1.


In [[business cycle]] theory and finance, any economic quantity that is positively correlated with the overall state of the economy.


Shareholder value calculations take account of:
Any quantity that tends to increase when the overall economy is growing.


(i) The market value of shares;


(ii) Dividends paid out to the shareholders;
2.


(iii) Capital introduced by the shareholders; and
The additional amplification effects resulting from the structure of the financial system.


(iv) Capital returned to the shareholders.
The performance of banks tends to be procyclical. They thrive when the economy is strong, and suffer disproportionately when the general economy is weak.


This is a problem, because it can amplify financial instability.


Often the term is used qualitatively to describe the general trend away from focusing on accounts-related measures of performance and towards economic value-based measures of performance.
Basel III sought to address the problem of the procyclicality of the largest banks' capital, by requiring them to hold countercyclical capital buffers.


Shareholder value management emphasises the consequences of management decision-making in terms of resulting market values rather than in terms of purely accounting based measures such as accounting profits or earnings per share.


 
The opposite of procyclical is ''countercyclical''.
In simple terms, shareholder value is added or created when the Internal rate of return from the firm's investment projects exceeds the appropriately risk-adjusted Weighted average cost of capital.




== See also ==
== See also ==
* [[Corporate finance]]
* [[Bank]]
* [[Corporate value]]
* [[Basel III]]
* [[Cost of capital]]
* [[Buffer]]
* [[Dilution]]
* [[Capital]]
* [[Earnings per share]]
* [[Capital buffer]]
* [[Economic value added]]
* [[Countercyclical]]
* [[Internal rate of return]]
* [[Countercyclical buffer]]
* [[Market value]]
* [[Cyclical]]
* [[Market value added]]
* [[Economy]]
* [[Metric]]
* [[Procyclicality]]
* [[Multiples valuation]]
* [[Prudential]]
* [[Shareholder value analysis]]
* [[Supervision]]
* [[Total shareholder return]]
* [[Total Loss Absorbing Capacity]]
* [[Value driver]]
* [[VBM]]
* [[Weighted average cost of capital]]


[[Category:Corporate_finance]]
[[Category:Manage_risks]]
[[Category:The_business_context]]

Latest revision as of 08:48, 1 December 2023

1.

In business cycle theory and finance, any economic quantity that is positively correlated with the overall state of the economy.

Any quantity that tends to increase when the overall economy is growing.


2.

The additional amplification effects resulting from the structure of the financial system.

The performance of banks tends to be procyclical. They thrive when the economy is strong, and suffer disproportionately when the general economy is weak.

This is a problem, because it can amplify financial instability.

Basel III sought to address the problem of the procyclicality of the largest banks' capital, by requiring them to hold countercyclical capital buffers.


The opposite of procyclical is countercyclical.


See also