Strategic Planning for Value-based Management: an Empirical Examination

Companies have obligation to create real economic value for their shareholders. Managers and top executives have been under constant pressures to adopt “value-based management” from their shareholders and other market participants. Participants in financial markets are actively involved in individual companies’ operations through leveraged buyouts, hostile take-over, and proxy contests, and top executives have also been increasingly engaged in the financial markets through mergers and acquisitions, restructuring, leveraged buyouts and share repurchases. Hostile takeovers in the U. S. in 1980s, financial crises in Southeast Asian countries in 1998, and a collapse of Internet companies in 2000 show vividly the consequences of ignoring value-based management. However, it has been very difficult to establish and implement strategies for “value-based” management since “value” is an abstract in nature and managers need to have a specific operational guide for implementing value management. This paper developed a model to identify empirically critical strategic variables for value-based management. Since ‘value’ is abstract in its nature, managers need to know more concrete and clear target measures that derive the value of their business. Common financial variables and their variations are used as input variables to synthesize the market value added (MVA). In this model an Artificial Intelligence (AI) technique is used because it is non-parametric and can capture a dynamic relationship which is anticipated to exist between input and output variables. The study results show that the AI model was able to predict MVA of companies using common financial measures and a set of major strategic variables were successfully identified.