Document Type


Publication Date



Value Based Management (VBM) has become a common tool for evaluating corporate strategies and projects from the perspective of shareholder value maximization, and can be an important input for corporate compensation systems. But traditional VBM frameworks make no systematic effort to distinguish between changes in performance attributable to macroeconomic fluctuations beyond management's control and changes in performance that reflect the intrinsic competitive position of the firm.

The authors have developed an approach for “filtering out” the impact of macroeconomic fluctuations on cash flows for purposes of performance evaluation. Such fluctuations are captured by changes in exchange rates, interest rates, and aggregate price levels (both domestically and abroad) that are significantly correlated with a particular company's cash flows. The authors also provide a method for distinguishing between expected and unanticipated cash flow effects of macro events and recommend insulating managers' performance only from the changes they cannot anticipate and manage. In applying the framework to Electrolux, a Swedish multinational, the authors show that unanticipated changes in the krona/pound exchange rate and various interest rates contribute significantly to the variability of the firm's cash flows; and with the help of the sensitivity coefficients used to measure such exposures, they calculate measures of “intrinsic” cash flow that are purged of such macro effects.


This is the accepted version of the following article:

Oxelheim, Lars, and Clas Wihlborg. "Recognizing macroeconomic fluctuations in value based management." Journal of Applied Corporate Finance 15.4 (2003): 104-110.

which has been published in final form at DOI: 10.1111/j.1745-6622.2003.tb00531.x.

Peer Reviewed






To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.