Aswath Damodaran on valuation, bias, and real value creation

Valuation and corporate finance heavyweight, Professor Aswath Damodaran, joins us to discuss what truly drives value creation. Damodaran challenges conventional wisdom around return on invested capital, cost of capital, and incentive metrics, explaining why accounting-based measures often mislead managers and investors. He explores the importance of connecting corporate narratives and numbers, treating R&D and brand-building as real investments, and recognizing bias and overconfidence in forecasts—especially in capital allocation and M&A. While he is openly skeptical of EVA due to its susceptibility to being gamed, this critique highlights the need for more robust and innovative approaches to measuring value creation. The conversation also covers corporate life cycles, why most companies struggle to earn returns above their cost of capital, and Damodaran’s perspective on the AI investment boom.