CONTROL VALUE: BY ER. AVINASH KULKARNI

Saturday Brain Storming Thought (180) 15/07/2023

CONTROL VALUE

Control Value is a quantitative measure of the value of controlling the outcome of an uncertain variable

Decision analysis provides a means for calculating the value of both perfect and imperfect control

Control Value Appraisal

Control Value appraisals positively predict positive emotions and performance

These appraisals negatively predict students negative emotions

The interaction between control and value significantly adds to the prediction

Control Value theory proposer

Pekrun – 2006, L2 emotions can be categorised into there dimensional taxonomies, including object focus, valence and activation

Control Value in Company

The number of shares in a company that is sufficient to be able to control the company

In a public traded company, the control value may be 50%+1 for ordinary decisions, or a supermajority of shares for more important decisions

Such shares command a higher price than other shares because each share represents a level of oversight in the company that non-control share do not possess

Importance of control Value for Valuer

For Valuer, the value of control is often a key factor is determining value

1) in acquisitions, acquirers often pay a premium for control value that can be a substantial

2) when buying shares in a publicly traded company, investors often pay a premium for voting shares because it gives them a stake in control

3) in private companies, there is often a discount attached to buying minority stakes in companies because of the absence of control

Variable for Control Value

1) the change in value from changing the way a firm is operated

2) the probability that this change will occur

Gaining Control Value

1) the cash flows from existing assets to the firm can be increased, by either

Increasing after tax earning or reducing reinvestment needs

2) the expected growth rate in these cash flows can be increased by

Increasing the rate of reinvestment in the firm or by improving the return on capital on those reinvestment

3) the length of high growth period can be extended to allow for more years of high growth

4) the cost of the capital can be reduced by

Reducing the operating risk in investments/assets

Changing the financial mix

Changing the financing composition

Probability of changing control Value

1) The probability of changing management will change over time as a function of legal changes, market developments and investor shifts

2) the probability of changing management will be different across different companies and will vary across different markets

3) the more power to stockholders have tge stronger corporate governance systems, the greater is the probability of management change for any given firm

Manifestations of control Value

1) hostile acquisitions

2) valuing publicity traded firms

3) voting and non voting shares

4) minority discounts in private companies

Definition of controlling

Henry Fayol – control consists in verifying whether everything occurs in conformity with the plan adopted, the instructions issued and the principles established

Control Value process

1) continuous process

2) flexible and dynamic process

3) future oriented

4) planning and controlling closely related

5) function of management

6) strategic and result oriented

7) understandable

8) timely and exception oriented

9) essence of control is action

Control Value information

1) the value of information is never negative