Applying Pablo Fernandez Model of Created Shareholder Value in the Egyptian Market: A Case Study of Telecommunications Industry

Abstract

This Research discusses the concept of valuation and its different roles and corporate valuation and its different techniques, also this research discusses two techniques of equity valuation which are book value of equity and market value of equity. To measure created value for shareholder has been the issue of study all over the world. It became a crucial issue since the firms were increasingly committed to create shareholder value. In this research, we will present a definition and analysis for shareholder value creation as compared to equity valuation methods such as book value of equity and market value of equity. In order to understand this concept well, we will apply the “Created Shareholder Value” model proposed by Pablo Fernandez on the telecommunications sector in the Egyptian market through a case study of listed companies, Orascom Telecom Holding (OTH) and Telecom Egypt (TE) from 2008 to 2012. To measure the value created for shareholders, we have to define the “increase of equity market value”, “the shareholder value added”, “the shareholder return” and “the equity required return”. It is important not to mix up the created shareholder value with any of the other concepts mentioned before. All of those concepts will be discussed and analyzed in this paper. When the shareholder return exceeds the required return to equity, a firm creates value for its shareholders. This study also showed that although, in certain years, the companies under study have high values of equity book value and equity market value, they didn’t create value for their shareholders since the shareholder return was less than the equity required return in those years.