Read the Graham et al. article on value destruction and
choose what you believe are the two key...

Question

Read the Graham et al. article on value destruction and
choose what you believe are the two key issues that lead to the destruction of
shareholder value. Defend your
choices.
	
Document Preview: Value Destruction and Financial Reporting Decisions
John R Graham; Campbell R Harvey; Shiva Rajgopal
Financial Analysts Journal; Nov/Dec 2006; 62, ABI/INFORM Global6; 
pg. 27
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Robert · Accepted Answer

Value Destruction and Financial Reporting Decisions 
The two key issues which have been identified that lead to the destruction of shareholder value is 
short term focus on earnings as performance measure and reporting standards. 
The performance measure of shareholders values as identified in this research paper is revenue, 
earnings, cash flow from operations, free cash flow, pro forma earnings and Economic value 
added. According to this research paper,  earnings dominates as the measure of performance for 
disclosing to outsiders, in this process the outsiders are not fully known about other performance 
measures like from revenue, from cash flows, from  Economic value added, from  Internal rate of 
return  and from  other performance measures. The managers are responsible for investment 
decisions and this responsibility comes with accountability. The primary focus of the investors 
whether it be institutional investors or individual investors is to derive maximum benefit and 
obtain maximum profit from their investment. To please the investors the managers present cozy 
picture in minimum possible duration of time frame or short term earnings. In this process 
managers miss out long term projects which can add more economic value to the investors. 
There is run among mangers and financial investors to beat the benchmark earnings investment 
index. In this run they forego many projects and try to avoid risk. The first and foremost criteria 
to managers are to meet and beat the benchmark index.

Read the Graham et al. article on value destruction and choose what you believe are the two key issues that lead to the destruction of shareholder value. Defend your choices. Document Preview: Value...

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