Shareholder Value

Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company's success is the extent to which it enriches shareholders. It became popular during the 1980s, and is particularly associated with former CEO of General Electric, Jack Welch.

The term used in several ways:

  • To refer to the market capitalization of a company (rarely used)
  • To refer to the concept that the primary goal for a company is to increase the wealth of its shareholders (owners) by paying dividends and/or causing the stock price to increase
  • To refer to the more specific concept that planned actions by management and the returns to shareholders should outperform certain bench-marks such as the cost of capital concept. In essence, the idea that shareholders' money should be used to earn a higher return than they could earn themselves by investing in other assets having the same amount of risk. The term in this sense was introduced by Alfred Rappaport in 1986.

Read more about Shareholder Value:  Definition, History, Agency Theory and Shareholder Value, Maximizing Shareholder Value, Criticism, Disadvantages of The Shareholder Value Model, Alternative: Stakeholder Value