Shareholder Value Creation: A Definition

10 Pages Posted: 30 May 2001 Last revised: 2 Jun 2019

Date Written: May 22, 2019


In this paper, we will define and analyze shareholder value creation. To help us understand this concept better, we will use the example of a listed company, General Electric, between 1991 and 2012.

To obtain the created shareholder value, we must first define the increase of equity market value, the shareholder value added, the shareholder return, and the required return to equity.

A company creates value for the shareholders when the shareholder return exceeds the required return to equity. In other words, a company creates value in one year when it outperforms expectations.

The created shareholder value is quantified as follows:
Created shareholder value = Equity market value x (Shareholder return - Ke)

The created shareholder value can also be calculated as follows:
Created shareholder value = Shareholder value added - (Equity market value x Ke)

We also calculate the created shareholder value of 142 American companies.

Keywords: Shareholder value creation; Created shareholder value; Increase of equity market value; Shareholder value added; Shareholder return; Required return to equity

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, Shareholder Value Creation: A Definition (May 22, 2019). Available at SSRN: or

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)


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