Definition of Shareholder Value
Shareholder value also known as shareholder value maximization, is generated when a company makes profits from its investments, increases sales, and has more free cash flows. In this way, the equity value of the shareholders in the company’s balance sheet increases. An increase in shareholder value also means the company will distribute higher dividend amounts.
Shareholder’s value in the company is dependent on the management's wise decisions, strategies to achieve goals, investment in healthy projects, more innovation, and more customer value from their products and services. Mergers also increase shareholder value heavily in the company.
Although there is no legal responsibility on the company to increase shareholder value, it is a tool to measure the company's success over a period.