Management Sciences and Quantitative Methods Commons^™

Recognizing Macroeconomic Fluctuations In Value Based Management, Lars Oxelheim, Clas Wihlborg

Business Faculty Articles and Research

Value Based Management (VBM) has become a common tool for evaluating corporate strategies and projects from the perspective of shareholder value maximization, and can be an important input for corporate compensation systems. But traditional VBM frameworks make no systematic effort to distinguish between changes in performance attributable to macroeconomic fluctuations beyond management's control and changes in performance that reflect the intrinsic competitive position of the firm.

The authors have developed an approach for “filtering out” the impact of macroeconomic fluctuations on cash flows for purposes of performance evaluation. Such fluctuations are captured by changes in exchange rates, interest rates, and …