Increasing shareholder value should be initiated by increased earnings or profits thus the decision-making process by management is vital. The capital market is a global phenomenon, hence investors can shift their investments to better yielding companies, that are foreign and that create better business opportunities. It is for the reason that shareholder value remains critical to international business enterprises. In addition, the current shift evident in corporate governance has brought about a demand for accountability by business owners from corporate executives. Management team thus seeks to justify increased shareholder value as a way of encouraging existing and potential investors.
Additionally, to the international business, shareholder value plays a critical role as it acts as an encouragement for the investors to stay with the company. This thus means that the company will continue to undertake business and hence play critically in promoting economic development. Further still, if there has been a positive growth in shareholder value, new investors will be attracted (Stout, 2012, p. 17). This, in turn, means that the international business will have better chances of growing money.
From another perspective, shareholder value is a tool that makes it possible for managers to grow a granular view, in which the strategies, resources, and activities put forth help add value to it. Through this tool, it is possible for managers to access the success of the company as it aids in the computation of cash-based metrics like cash flow returns on investment and economic profits (Keay, 2012, p. 24). In the long run, it helps in drawing a comparison of the individual performance with other business across the globe and understands the market position presently.
Through these metrics, the discipline of every single business has been promoted since the allocation of capital by management taking a critical decision-making process. It helps in carrying careful evaluation on of potential investments against the possible option of returning cash to investors through dividends (Stout, 2012, p. 29).
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