The researchers – Phebo Wibbens, INSEAD Assistant Professor of Strategy, and Nicolaj Siggelkow, the David M. Knott Professor at The Wharton School of the University of Pennsylvania – say that using their tool provides long-term insight into company performance compared to short-term profitability ratios such as return on capital (ROC), total shareholder return (TSR) and earnings per share (EPS).
“Managers concerned mainly with short-term metrics such as quarterly earnings growth will be tempted to make quick cash at the expense of suppliers, customers and broader society,” said Wibbens, noting that, “In the long run these actions will likely backfire due to customer protests or stricter regulations, ultimately destroying value. LIVA provides managers with a metric that can help them gauge long-term value creation and consider which strategic decisions can allow their firms to flourish.”
The database of firms’ LIVA values can be accessed at www.liva-measure.com and includes more than 500,000 observations of 45,000 firms using 20 years of statistics from the Compustat North American and Global Security databases.
LIVA values can also be broken down to identify which parts of the firm have performed well at specific moments and to identify which strategic decisions have created or destroyed value – assisting executives and investors to make better-informed strategic decisions in the future.
A new performance measure of long-term success https://t.co/ktmOCKTmUC
— INSEAD (@INSEAD) December 9, 2019
