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Determinants of Increment in Shareholder Value: Sectoral Analysis

Student: Ermakova Anastasiia

Supervisor: Varvara Nazarova

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

In the modern world, the effective activity of corporate governance of an open or public company is the desire to consider interests of investors by creating a higher shareholder value. Identification of significant determinants from a wide range of indicators is the primary task of company management, however, the choice of the highest priority indicators depending on the specifics of the market causes problems both for the company leaders themselves and for potential investors interested in a more rapid increase in their well-being. In the framework of this study, the goal was to determine the most significant determinants that increase shareholder value, taking into account industry specifics, in order to determine the competent conduct of the company’s policy when making further strategic decisions to increase shareholder value. During the research work, the work of the authors who conducted research in this area was reviewed, and a comparative analysis of the state of the sectors in the stock markets of America and Russia was carried out. The work includes consideration of the theoretical aspects of determining the effectiveness of the company by shareholders, identifying ways to measure the value of shareholders, as well as comparing the parameters studied to identify the most relevant models for further construction. The practical component of this work is to choose the most appropriate model and assess the degree of influence of variables on the formation of shareholder value. It was noted that with the inclusion of industry specifics in the model, the importance of financial determinants and control variables varies. In the high-tech industry, including the Energy, IT and Telecommunication, Industrial and Healthcare sectors, there is a more favorable environment for investment. The main determinants of shareholder value are indicators of economic value added, net operating profit and cash flow from operating activities. Among the sectors represented, the largest increase in cost is observed in the Healthcare sector. For a non-high-tech industry, including the sectors of Materials, Consumers Goods and Services, Utilities and Real Estate, the situation is less likely to lead to efficient investment activities. Due to adverse conditions, the analyzed indicators affect the cost ambiguously: cash flow from operating activities, return on capital employed, and economic added value provide a strong increase; the ratio of market value to book value also has a positive impact, but there is a need to adjust the value of the indicator to a lower level compared to competitors on the market; return on assets has a strong negative impact; and there is a need for implementation of research and development activities and borrowing innovative ideas from younger companies to increase shareholder value within the industry. Among sectors of the non-high-tech specificity, the most positive trend is observed in the Consumers Goods and Services and Materials sector.

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