Shareholder value and Procyclical: Difference between pages

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Shareholder value is the value, or wealth, enjoyed by shareholders.
1.


Maximising long-term value for shareholders is a fundamental principle of corporate governance.
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.


The term 'shareholder value' describes the general trend away from historical accounts-based measures of performance, and toward economic value-based measures.


2.


In simple terms, shareholder value is added or created when the return from the firm's investments exceeds its cost of capital.
The additional amplification effects resulting from the structure of the financial system.


In other words, when the Internal rate of return from investment projects exceeds the appropriately risk-adjusted Weighted average cost of capital.
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.


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.
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 calculations take account of:
The opposite of procyclical is ''countercyclical''.
 
(i) The market value of shares;
 
(ii) Dividends paid out to the shareholders;
 
(iii) Capital introduced by the shareholders; and
 
(iv) Capital returned to the shareholders.




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

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