Strategic Management Journal, Volume41, Issue 5, May 2020
Abstract: This article introduces a new measure of long‐term firm performance: long‐term investor value appropriation (LIVA). This measure helps to address a disconnect between the common theoretical assumption that managers optimize firm value, and the widespread empirical practice of measuring performance using short‐term ratios such as return on assets (ROA). LIVA can lead to markedly different strategic insights compared to commonly used measures such as ROA and cumulative abnormal returns. For instance, the widely cited finding of a U‐shaped relation between acquisition experience and performance turns out to be largely driven by short‐term stock price movements and vanishes when using 10‐year LIVA.