6 - Shareholder value: A European perspective

Abstract

This chapter outlines some of the key drivers and barriers to change shareholder value in the European context. The traditional underdevelopment of equity markets in continental Europe has been one of the main obstacles to the development of shareholder value. The market capitalization as a percentage of gross domestic product (GDP) is low in continental Europe compared with Anglo-American figures, particularly in countries such as France, Germany, Italy, and Spain. The globalization of capital markets has led U.S. institutional investors to diversify internationally. The increasing share of U.S. ownership is likely to be a positive catalyst for European corporate management to focus more on shareholder value. New investors are demanding changes in the European context. Unlike traditional banks with long established relationships over generations with companies, the new capital requires more disclosure of financial information. The historic information asymmetry between managers and outside investors has led to poor investment decisions and the misallocation of capital to under-performing companies. Despite the recent efforts by several European companies to disclose more information, most companies with the exception of those in the UK are still far behind U.S. public companies. The arrival of Euro has created an environment for restructuring of the processes with the release and redeployment of resources more efficiently and profitably.