IDEAS home Printed from https://ideas.repec.org/a/rsk/journ4/2223778.html
   My bibliography  Save this article

Are real investment decisions based on risk-adjusted performance measures consistent with maximizing shareholder value?

Author

Listed:
  • Niklas Lampenius

Abstract

ABSTRACT We show that the use of risk-adjusted performance measures (RAPMs), such as the return on risk-adjusted capital (RORAC) or the risk-adjusted return on risk-adjusted capital (RARORAC), as decision criteria for real investment decisions might favor projects that do not maximize shareholder value for project selection of mutually exclusive projects. We find that RAPMs based on conditional value-at-risk (CVaR) are in general more consistent with the net present value (NPV) criterion than RAPMs based on value-at-risk (VaR). In addition, measures that are based on relative (C)VaR are more consistent with the NPV criterion than measures based on absolute (C)VaR. Overall, we find that the RARORAC based on the relative (C)VaR outperforms all evaluated RAPMs in this context.

Suggested Citation

Handle: RePEc:rsk:journ4:2223778
as

Download full text from publisher

File URL: https://www.risk.net/system/files/import/protected/digital_assets/6039/jor_lampenius_web.pdf
Download Restriction: no
---><---

More about this item

Statistics

Access and download statistics

Corrections

All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsk:journ4:2223778. See general information about how to correct material in RePEc.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

We have no bibliographic references for this item. You can help adding them by using this form .

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Paine (email available below). General contact details of provider: https://www.risk.net/journal-of-risk .

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.