Disarming the Value Killers: A Risk Management Study

Investors and executives share a mutual desire for the success of their company, but they also harbor a common fear: a precipitous drop in share price that results in restricted credit, impeded growth, decimated pension plans, and reduced competitiveness. Unfortunately, unlike many concerns, this phobia is grounded in reality. Steep market drops affect a significant percentage of companies, encumbering them with negative repercussions that can last for years.Indeed, over the last decade, almost half of the 1000 largest global companies suffered declines in share prices of more than 20 percent in a one-month period, relative to the Morgan Stanley Capital International (MSCI) World Index. By the end of 2003, roughly one-quarter of these companies had still not recovered their lost market value.

Another one-quarter took more than a year for their share prices to recover.Although each of these companies experienced unique circumstances that contributed to their loss of value, there are several common underlying risk factors that resulted in a negative effect on value. Deloitte Research, a part of Deloitte Services LP, analyzed the factors underlying these major losses in value from 1994 to 2003, with the goal of identifying strategies that companies might take to manage risk and better protect shareholder value.

See full Deloitte Research Study, in pdf format.