Value based management: Testing the financial performance metrics in İstanbul Stock Exchange

in ABSTRACT VALUE BASED MANAGEMENT: TESTING THE FINANCIAL PERFORMANCE METRICS IN ISTANBUL STOCK EXCHANGE Murat ERTUGRUL Business Administration Department Graduate School of Social Sciences, June 2005 Advisor: Prof. Dr. Nurhan AYDIN Determining and defining their main goal properly is vital for companies to be able to plan and execute their operations effectively. The question of "what should be the main goal of companies" has been one of the most considerable debates of the fields of economics and finance. Classical economic view considered companies as economic units that are established for profit. So, it suggested maximizing the profit as the main goal of companies. However, the studies on portfolio management, valuation, market efficiency and agency costs during 1950s, 60s and 70s, led to considerable critiques on the goal of profit maximization. Since 1970s, companies have been faced with tough competition for capital and effective capital allocation problems by the breakdown of Bretton-Woods system; acceleration of economic globalization and liberalization driven by political movements in the USA and in the UK; emergence of more sophisticated and more demanding new investor profile controlling greater funds; increase in global competititon, consolidation, and international investments. Insufficiency of traditional accounting profit figures has become more clear with these developments. Value Based Management concept has started to replace profit based management. The continuing debates beginning from this point have been kept on feasibility of VBM in the context of market efficiency, validity of traditional financial performance metrics, and value based performance metrics replacing them.