Knowra Shareholder value Shareholder value Shareholder value is the economic value of a company’s equity to its owners. It is often treated as a guide for decisions about investment, financing, and distributions.
Discounted cash flow : A valuation method that estimates an asset’s worth from its expected future cash flows, discounted to present value. It makes future company cash flows and their timing central to estimating equity value.
Stakeholder theory : A theory of corporate purpose that gives consideration to groups affected by a company, including workers, customers, and communities. It challenges the view that corporate decisions should prioritize shareholders above other affected groups.
Corporate governance : The system of rules, institutions, and practices through which companies are directed and monitored. Governance determines how managers are held accountable for shareholder returns.
Friedrich Hayek : An Austrian-born economist and political philosopher known for arguments for individual liberty and market coordination. His 1960 essay on political and economic freedom helped shape later arguments about corporate purpose.
Fiduciary duty : A legal obligation to act loyally and carefully for another party when entrusted with decision-making power. Debates over shareholder value often turn on what directors legally owe shareholders.
Weighted average cost of capital : The average rate of return a company must provide to debt and equity investors, weighted by their financing shares. It supplies a common discount rate for assessing whether company investments create value.
Corporate social responsibility : Business practices through which companies address their social and environmental effects. It asks companies to account for responsibilities that may not immediately raise equity value.
Executive compensation : The salary, bonuses, equity awards, and benefits provided to senior company executives. Linking pay to share performance can align executives with owners but encourage short-term risk-taking.
Milton Friedman : An American economist who argued that businesses should pursue profits within the rules of law and ethical custom. His 1970 essay made the case for corporate executives’ responsibility to shareholders widely influential.
Corporate purpose : The account of why a corporation exists and whose interests it is meant to serve. The concept raises whether shareholder returns are the company’s purpose or one goal among several.
Show all 28