Shareholder Value Creation of Microsoft and Ge

16 Pages Posted: 29 Jun 2004

See all articles by Pablo Fernandez

Pablo Fernandez

University of Navarra - IESE Business School

Abstract

In this paper, we will define and analyze shareholder value creation. To help us understand this concept better, we will use the example of two listed companies, General Electric and Microsoft, between 1992 and 2003.

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 (Ke). In other words, a company creates value when it outperforms expectations.

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 400 American companies during the eleven-year period 1992-2003.

Keywords: Shareholder value added, shareholder value creation, created shareholder value

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, Shareholder Value Creation of Microsoft and Ge. Available at SSRN: https://ssrn.com/abstract=559419 or http://dx.doi.org/10.2139/ssrn.559419

Pablo Fernandez (Contact Author)

University of Navarra - IESE Business School ( email )

Camino del Cerro del Aguila 3
28023 Madrid
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

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