Shareholder Ownership Value
Encyclopedia
Shareholder Ownership Value is a financial theory that is starting to be discussed among academics in the US and internationally after the recent Sub-prime crisis. It was originally developed at the Wharton School of the University of Pennsylvania
by Paolo G. Alberoni and published in 1994.
The SOV theory argues a relative limit of the CAPM
as it fails to incorporate in WACC
the decision Power for Shareholder (Owner) to decide the destination of the company/assets Cash Flows.
In the paper, Alberoni shows evidence and structures a reference framework demonstrating how the stock exchange fails to capture the full value of assets in the long term and therefore undervalues them in the long run.
In essence, under common wisdom a company that dismisses real assets and leases them back gets benefits from tax breaks, better liquidity, etc. The SOV theory looks back and demonstrates that "assets free" companies are more vulnerable to extreme shocks and have recorded performance in line with "asset loaded" companies in the same field.
The paper therefore highlights how the ownership of assets in downturns allows a company with lower fixed costs, higher cash flows to compete in difficult times, and therefore that there must be a "missing part" in the original valuation.
Wharton School of the University of Pennsylvania
The Wharton School is the business school of the University of Pennsylvania, an Ivy League university in Philadelphia, Pennsylvania. Wharton was the world’s first collegiate business school and the first business school in the United States...
by Paolo G. Alberoni and published in 1994.
The SOV theory argues a relative limit of the CAPM
Capital asset pricing model
In finance, the capital asset pricing model is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk...
as it fails to incorporate in WACC
Weighted average cost of capital
The weighted average cost of capital is the rate that a company is expected to pay on average to all its security holders to finance its assets....
the decision Power for Shareholder (Owner) to decide the destination of the company/assets Cash Flows.
In the paper, Alberoni shows evidence and structures a reference framework demonstrating how the stock exchange fails to capture the full value of assets in the long term and therefore undervalues them in the long run.
In essence, under common wisdom a company that dismisses real assets and leases them back gets benefits from tax breaks, better liquidity, etc. The SOV theory looks back and demonstrates that "assets free" companies are more vulnerable to extreme shocks and have recorded performance in line with "asset loaded" companies in the same field.
The paper therefore highlights how the ownership of assets in downturns allows a company with lower fixed costs, higher cash flows to compete in difficult times, and therefore that there must be a "missing part" in the original valuation.