Abstract
In this paper we introduce lifetime (or long-term) investor value appropriation (LIVA) to measure firm performance, defined as the ex post value of discounted cash flows over a firm’s lifetime (or several decades). Unlike other commonly used measures of firm performance, such as return on assets, Tobin’s q, economic profit, or total shareholder return, LIVA captures long-term returns vis- à-vis the cost of capital, profitable growth, as well as the size of the economic impact in a single metric. Moreover, we show that LIVA can be equivalently operationalized using cash flow data, accounting profits, or shareholder return data. Finally, two exploratory empirical studies illustrate how LIVA can be operationalized and provide new strategic insights beyond currently used measures.
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