Abstract

http://ssrn.com/abstract=1975091
 


 



Are Real Investment Decisions Based on Risk Adjusted Performance Measures Consistent with Maximizing Shareholder Value?


Niklas Lampenius


University of Hohenheim

January 20, 2010

Journal of Risk (2012), 15 (2), pp. 77-101

Abstract:     
We show that the usage of risk adjusted performance measures (RAPM), such as the RORAC or the RARORAC, as decision criterion for real investment decisions might favor projects that do not maximize shareholder value for project selection of mutually exclusive projects. We find that RAPM based on the CVaR are in general more consistent with the NPV-criterion than RAPM based on the VaR. In addition, measures that are based on the relative (C)VaR are more consistent with the NPV-criterion than measures based on the absolute (C)VaR. Overall we find that the RARORAC based on the relative (C)VaR outperforms all evaluated RAPM in this context.

Number of Pages in PDF File: 22

Keywords: risk management, risk adjusted performance measures, RORAC, RARORAC, shareholder value, VaR, CVaR

JEL Classification: D92, G31, G32

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Date posted: December 21, 2011 ; Last revised: September 29, 2013

Suggested Citation

Lampenius, Niklas, Are Real Investment Decisions Based on Risk Adjusted Performance Measures Consistent with Maximizing Shareholder Value? (January 20, 2010). Journal of Risk (2012), 15 (2), pp. 77-101. Available at SSRN: http://ssrn.com/abstract=1975091

Contact Information

Niklas Lampenius (Contact Author)
University of Hohenheim ( email )
Stuttgart, 70593
Germany
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