How do Finnish Firms Maximise Shareholder Value? Descriptive Statistics on 20 Finnish Companies Listed on the OMXH
Zucca, Michele (2017)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2017112017489
https://urn.fi/URN:NBN:fi:amk-2017112017489
Tiivistelmä
From its origin in 1976 with Jensen and Meckling’s Theory of the Firm, based on the agency problem, shareholder value maximisation became a corporate mantra, as the primary purpose of a company became maximising value for its shareholders. Shareholder value maximisation is strongly connected with value creation, with firms creating value for investors, and value extraction, with executives generating wealth for themselves. Upon the preliminary research of the topic in Finland, various academic sources and the Finnish Limited Liability Company Act stated that the primary purpose of a firm is to generate value for its shareholders from a long-term perspective, and not for short-term capital gains.
The present thesis forms around the hypothesis that Finnish firms aim at maximising shareholder value. It examines data from the 20 largest publicly traded companies in the Helsinki Stock Exchange (OMXH) during years 2012-2016 to view how firms seek at maximising shareholder value. The indicators looked upon for shareholder value maximisation are executive compensation (or CEO pay), shareholdings and stock options, dividends, share repurchases or buybacks, and the choice between dividends and share repurchases. The data and statistics are then compared with 20 U.S. publicly traded companies with correspondent market cap.
Empirical evidence has shown that while executive compensation within both Finnish and U.S. companies is strongly related to shareholder value maximisation within CEO variable pay (especially with Long-Term Incentives strongly tied to performance), in U.S. there is a higher ratio of variable pay if compared to fixed pay, while in Finland base salary represents a steady part of executive compensation. A strong dividend policy to maximise shareholder value by returning excess cash to shareholders, with an increase of dividends per share over time, was encountered in both Finnish and U.S. companies. Stock option plans are still widely used in U.S., while results have not shown significant evidence of stock options granted, or exercised, by the Finnish executives. While share repurchases are widely used in U.S. to return cash to shareholders, Finnish firms did not have a significant amount of share repurchases between 2012 and 2016, with dividends being the chosen method to reward shareholders and investors.
The present thesis forms around the hypothesis that Finnish firms aim at maximising shareholder value. It examines data from the 20 largest publicly traded companies in the Helsinki Stock Exchange (OMXH) during years 2012-2016 to view how firms seek at maximising shareholder value. The indicators looked upon for shareholder value maximisation are executive compensation (or CEO pay), shareholdings and stock options, dividends, share repurchases or buybacks, and the choice between dividends and share repurchases. The data and statistics are then compared with 20 U.S. publicly traded companies with correspondent market cap.
Empirical evidence has shown that while executive compensation within both Finnish and U.S. companies is strongly related to shareholder value maximisation within CEO variable pay (especially with Long-Term Incentives strongly tied to performance), in U.S. there is a higher ratio of variable pay if compared to fixed pay, while in Finland base salary represents a steady part of executive compensation. A strong dividend policy to maximise shareholder value by returning excess cash to shareholders, with an increase of dividends per share over time, was encountered in both Finnish and U.S. companies. Stock option plans are still widely used in U.S., while results have not shown significant evidence of stock options granted, or exercised, by the Finnish executives. While share repurchases are widely used in U.S. to return cash to shareholders, Finnish firms did not have a significant amount of share repurchases between 2012 and 2016, with dividends being the chosen method to reward shareholders and investors.