Value creation of EVA and traditional accounting measures: Indian evidence

2016 ◽  
Vol 65 (4) ◽  
pp. 436-459 ◽  
Author(s):  
Vijay Kumar Gupta ◽  
Ekta Sikarwar
Keyword(s):  
Stock Returns ◽  
Information Content ◽  
Performance Measures ◽  
Value Creation ◽  
Economic Value ◽  
Value Added ◽  
Performance Measure ◽  
Content Type ◽  
Financial Measures ◽  
Incremental Information

Purpose – The purpose of this paper is to examine the superiority of economic value added (EVA) over the traditional accounting performance measures, i.e. earnings per share, return on assets and return on equity. For this purpose, the relative and incremental information content of EVA and accounting measures are tested by examining the relationship of these measures with stock returns. Design/methodology/approach – The analysis is performed for a sample of 50 Indian companies selected from the index Nifty 50 for the period of 2008-2011. The penal regression models are applied to examine the relative and incremental information content of EVA and traditional performance measures. Findings – The study finds that EVA has more relevant and incremental information content than accounting measures for analyzing shareholder value creation. These results confirm that EVA is better performance measure than traditional accounting measures. Research limitations/implications – The study could be further extended for the sample of other firms covering the specific industries and sectors. The calculation of EVA could be modified with respect to the adjustment in profit after tax and the calculation of cost of capital. Practical implications – The study has implications for the managers who are responsible to generate the wealth of shareholders by formulating the corporate financial policies. The findings also help investors who are closely concerned with the financial health of the firm while taking their investment decisions. Originality/value – The novelty of this study is that it relates total return of firm’s stock with the financial measures unlike the previous literature.

scholarly journals Perbandingan Pengaruh Laba dan Value Added pada Return Saham

2019 ◽  
pp. 1038
Author(s):  
Gentha Putri Wardana ◽  
Dewa Gede Wirama
Keyword(s):  
Stock Returns ◽  
Information Content ◽  
Stock Exchange ◽  
Economic Value ◽  
Value Added ◽  
Theoretical Implication ◽  
Performance Measure ◽  
Company Performance ◽  
Relative Information ◽  
Relative Information Content

The information of value added is considered to be a better company performance measure and has better association on stock returns compared to earning information that is often used. This study aims to compare the relative information content of earnings and value added in explaining stock returns. This research conducted on all companies listed on the Indonesia Stock Exchange in 2013-2017. 308 samples were taken using random sampling method. The data analysis technique was simple linear regression. It was found that EVA and FVA as proxies of value added outperformed earnings. EVA is also found to be more associated with stock returns compared to FVA. The theoretical implication is in addition to references to further research regarding company performance measurement and stock returns. The practical implications is a matter of consideration for investors to make investment decisions and reference for corporate in financial decision making according to preferences of shareholders. Keywords: Earning, economic value added, financial value added, stock return, relative information content  

An empirical investigation of the relationship between TSR, value-based and accounting-based performance measures

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Harnesh Makhija ◽  
Pankaj Trivedi
Keyword(s):  
Regression Analysis ◽  
Information Content ◽  
Performance Measures ◽  
Economic Value ◽  
Value Added ◽  
Dynamic Panel Data ◽  
Panel Regression ◽  
Dynamic Panel ◽  
Content Type ◽  
Dynamic Panel Regression

PurposeThe paper aims to find out the information content of performance measures from accounting and value-based measures that best explain the total shareholder return.Design/ methodology/ approachTo achieve this aim, static and dynamic panel data regression analysis is applied to the sample of 56 Indian companies taken from the Nifty Midcap 100 Index, between 2012 and 2019.FindingsIt is found that accounting-based measures have more relative information content in predicting total shareholder return as compared to value-based measures. Economic value added (EVA) and cash value added (CVA) do not add to the information content provided by accounting-based measures. A combination of accounting-based measures and value-added intellectual coefficient (VAIC) adds marginally to the information content provided by accounting-based measures in explaining the total shareholder return. Dynamic panel regression analysis shows that return on assets (ROA), return on capital employed (ROCE), return on equity (ROE) and EVA have a significant impact on total shareholder return.Originality/valueIn this study, along with EVA, other measures from value-based measures, i.e. CVA are empirically tested to explain the total shareholder return. Intellectual capital efficiency computed by VAIC is also empirically tested along with accounting-based measures, EVA, CVA and market value added (MVA). To bring robustness to findings, data are tested by using dynamic panel regression analysis.

Is refined economic value added more associated with stock return than accounting measures? The Malaysian evidence

2016 ◽  
Vol 38 (1) ◽  
pp. 69-85
Author(s):  
Habibollah Nakhaei ◽  
Nik Intan Norhan Hamid ◽  
Melati Ahmad Anuar ◽  
Karim Nakhaei
Keyword(s):  
Stock Returns ◽  
Information Content ◽  
Regression Models ◽  
Stock Return ◽  
Economic Value ◽  
Value Added ◽  
Economic Value Added ◽  
Incremental Information ◽  
Multiple Regression Models ◽  
Traditional Performance

The paper tests the hypothesis on whether refined economic value added (REVA) is highly associated with stock return compared to traditional performance measures. The goal of the study is to provide empirical evidence on the relative and incremental information content of REVA and traditional performance measures, such as net income (NI), net operational profit after tax (NOPAT), and earning per share (EPS). The study involves 395 non-financial companies listed in Bursa Malaysia over the period of 2002–2011. Pearson correlation coefficient and panel data single and multiple regression models were employed to analyze the data. The empirical results indicate that the relative information content of the REVA was not greater than that of NI and NOPAT to explain stock returns. NI and NOPAT were highly correlated with stock return compared to REVA. Additionally, the incremental information content test indicated that REVA makes some additional contribution to information content beyond the NI, NOPAT, and EPS. Finally, the panel multiple regression models showed that there was a strong relationship between NI, NOPAT, and REVA with stock return, but there was no meaningful association between EPS and stock returns. Overall, the results do not support the hypothesis that REVA can be considered superior to traditional accounting measures in association with stock returns.

scholarly journals Impact of Economic Value Added Dynamics on Stock Prices Fact or Fallacy: New Evidence from Nested Panel Analysis

2019 ◽  
Vol IV (III) ◽  
pp. 96-105
Author(s):  
Malik Adil Pasha ◽  
Muhammad Ramzan ◽  
Muhammad Asif
Keyword(s):  
Data Analysis ◽  
Panel Data ◽  
Stock Returns ◽  
Information Content ◽  
Stock Prices ◽  
Panel Data Analysis ◽  
Value Added ◽  
Performance Measure ◽  
Event Analysis ◽  
Incremental Information

Present scholarship targets to examine the robustness of EVA in Pakistan and information content while controlling prior research ignored firm-specific factors towards excess stock returns. The design of this research used panel data analysis whereby relevant, incremental information content and event analysis of EVA and conventional accounting performance measure via share prices is done by employing nested panel data analysis for 70 non-financial PSX listed companies from 13 industries for a study period of 2006-2015. Against prior research, EVA doesn’t add to the incremental information content of the model. Moreover asymmetric results were revealed using nested and separate regression analysis. This study is aimed to benefit stakeholders in the context of prudent investment choice. This study identifies ROA as the most important financial performance metric for local investor’s decision making. However firm-specific characteristics like financial leverage, liquidity, and firm size also play a pivotal role.

scholarly journals Value creation measures: an industry-based study

2018 ◽  
Vol 67 (2) ◽  
pp. 426-444
Author(s):  
John Henry Hall
Keyword(s):  
Stock Returns ◽  
Value Creation ◽  
Stock Exchange ◽  
Shareholder Value ◽  
Value Added ◽  
Value Drivers ◽  
Content Type ◽  
Johannesburg Stock Exchange ◽  
Return On Capital ◽  
Market Value Added

Purpose The purpose of this paper is to identify the shareholder value creation measure best suited to express shareholder value creation for a particular industry. Design/methodology/approach The analysis was performed on 192 companies listed on the Johannesburg Stock Exchange, classified into nine different samples or industries. Five shareholder value creation measures were examined, namely market value added (MVA), a market-adjusted stock return, the market-to-book ratio, Tobin’s Q ratio, and the return on capital employed divided by the cost of equity. Findings An analysis of the nine categories of firms led to the identification of different measures that are suited to express value creation. Stock returns did not provide an appropriate value measure. Instead, depending on the specific industry, Tobin’s Q ratio, MVA, and the market-to-book ratio should be used to measure and express value creation. Practical implications For management, the value drivers identified for each industry present a clear indication of industry-specific variables upon which they can focus in operating activities to most efficiently increase shareholder value. Originality/value Unlike previous studies that use only one or two different shareholder value creation measures as dependent variables, this study uses five different value creation measures. Another contribution of this study is the compilation of a unique set of value drivers that explain shareholder value creation separately for each of the nine different categories of firms.

Social construction of linking executive compensation to EVA: a study on Indian corporates

2019 ◽  
Vol 11 (3) ◽  
pp. 202-219 ◽  
Author(s):  
Manju Tripathi ◽  
Smita Kashiramka ◽  
P.K. Jain
Keyword(s):  
Financial Performance ◽  
Executive Compensation ◽  
Performance Management ◽  
Economic Value ◽  
Value Added ◽  
Performance Measure ◽  
Goal Congruence ◽  
Content Type ◽  
Performance Benchmarks ◽  
The Right

Purpose “Paying for performance” has been the corporate mantra for ages, but finding the right performance benchmarks continues to be an enigma. Equally significant is the ongoing debate on the superiority of economic value added (EVA) aligned executive incentive plans over traditional financial performance benchmarks to ensure optimal goal congruence between the corporate and the executive performances. Consequently, this paper aims to explore a plausible linkage between executive compensation and EVA for Indian corporates from a social constructivist perspective. Design/methodology/approach The study uses a mixed method approach where the quantitative analysis of responses from the survey of senior personnel/finance executives of Indian firms is complemented by the qualitative analysis of personal interviews to provide contextual depth to the quantitative data. Findings Based on the study, the researchers construct an understanding that EVA is a superior concept but has restricted utility primarily owing to its computational complexity and unaudited characteristics. The researchers’ interpretive inference finds mandatory disclosure of an audited EVA figure in the corporate financial statements as a prime requirement for EVA to emerge as an objective and visible performance measure. Practical implications Attention of policymakers is sought towards standardising its computation and ensuring its disclosure to bring it at par with the conventional executive financial performance benchmarks. Originality/value The narrative on benefits and the challenges of adopting EVA aligned performance management system is provided directly by the top-level executives responsible for designing the “paying for performance” policies.

scholarly journals Intangible-driven value creation: supporting and obstructing factors

2014 ◽  
Vol 18 (3) ◽  
pp. 87-100 ◽  
Author(s):  
Elena Shakina ◽  
Mariya Molodchik
Keyword(s):  
Value Creation ◽  
Investment Decision ◽  
Economic Value ◽  
Value Added ◽  
Market Value ◽  
Intangible Capital ◽  
Future Research ◽  
Unexpected Result ◽  
Content Type ◽  
The Impact

Purpose – This study aims to investigate the factors that support or obstruct market value creation through intangible capital. Design/methodology/approach – The paper explores the impact of intangibles and exogenous shocks on corporate attractiveness for investors measured by market value added. Specifically, the relationship between intangible-driven outperformance of companies, measured by economic value added (EVA) and a number of intangible drivers on macro-, meso- and micro-levels is analyzed. It is supposed that the process of value creation is not only confined to companies’ performances. The empirical research was conducted on > 900 public companies from Europe and the USA during the period of 2005-2009. Findings – The study establishes that investment attractiveness is affected by intangibles. It is found that a company’s experience, size and innovative focus facilitate value creation. An unexpected result was revealed concerning countries’ education level, which appears to be an obstructive condition for intangible-driven value creation. Research limitations/implications – The study reveals the significance of industry belonging for intangible-driven value creation. Nevertheless, it does not discover the particular characteristics of industry that influence corporate attractiveness for investors. These issues could be addressed in future research. Practical implications – The findings established in this study extend the understanding of the phenomenon of intangible capital and enable the improvement of investment decision-making. Originality/value – The study emphasizes the holistic framework of market value creation by analyzing a number of strategic crucial factors in line with EVA.

scholarly journals The information content of Economic Value Added of food-processing firms in the Czech Republic in the comparison with the information content of traditional performance metrics

2006 ◽  
Vol 54 (6) ◽  
pp. 77-84
Author(s):  
Gabriela Chmelíková
Keyword(s):  
Information Content ◽  
Performance Measures ◽  
Food Processing ◽  
Performance Metrics ◽  
Empirical Studies ◽  
Economic Value ◽  
Value Added ◽  
Superior Performance ◽  
Economic Value Added ◽  
Traditional Performance

The topic of this paper is motivated by the increasing popularity of Economic Value Added (EVA) and by the need to make the managing process of Czech agribusiness firms more efficient. Through adoption of EVA principle, the proponents of EVA argue, that EVA will lead to increased efficiency in the management and allocation of all assets and hence increased shareholder value. Though from the theoretical point of view EVA is seen as a superior performance metric, the results of the most empirical studies do not support this claim. One of the standard argument against EVA superiority results from the statistical survey of the relationship between EVA and traditional performance measures. Despite of the results of the most empirical studies this paper assumes (with regard to the specifics of Czech food processing sector) a difference in information content of EVA and traditional performance metrics. The intent of this article is to provide a simple regression test of the hypothesis that between EVA and traditional performance metrics is not tight linear dependency, which would point out that EVA has the same information content as traditional performance measures. The regression results indicate in all cases a positive correspondence between EVA and financial performance metrics with very low dependency of EVA on the financial metrics, which supports the examined hypothesis.

Endogenous value creation: managerial decisions on intangibles

2017 ◽  
Vol 40 (4) ◽  
pp. 410-428 ◽  
Author(s):  
Elena Shakina ◽  
Mariia Molodchik ◽  
Angel Barajas
Keyword(s):  
Value Creation ◽  
Structural Equation ◽  
Economic Value ◽  
Value Added ◽  
Public Companies ◽  
Content Type ◽  
Managerial Decisions ◽  
Top Managers ◽  
Sustainable Competitive Advantages ◽  
A Company

Purpose This study aims to explore value creation through intangibles in corporations, taking into consideration the endogenous nature of managerial decisions. It is stated that intangibles bring extra information asymmetry into a company and make managers and investors’ goals less aligned. Design/methodology/approach A theoretical model is elaborated and empirically tested on the assumption that managers, while investing in intangibles, simultaneously make a company competitive and attractive to investors. The authors use a conceptual model of endogenous value creation to test how intangibles affect outperforming of a company and provoke the expectations of investors. The research is carried out on a sample of more than 1,650 European companies covering the period from 2004 to 2011. Structural equation modelling is applied for the purposes of empirical analysis. Findings The authors reveal a diverse impact of intangibles on outperforming of a company measured by economic value added and its ability to create market value. The study discovers that managers are prone to indicate positive signals to investors rather than create sustainable competitive advantages. Practical implications This research emphasizes on the particular importance of awareness of policymakers, namely, companies’ top managers, about the outcomes of their decisions. Decision-making in public companies should involve as much deliberation as possible about the potential impact of what is decided. Originality/value This work contributes primarily to the field of corporate finance in companies that use intangibles. The endogenous process of value creation is modelled and tested. As a result, a number of essential problems in agent relationships in intangible-intensive corporations are discovered.

scholarly journals The information content of economic value added, residual income, earnings and operating cash flow: evidence from South African industrial shares

2010 ◽  
Vol 7 (3) ◽  
pp. 454-464 ◽  
Author(s):  
Pierre Erasmus
Keyword(s):  
Information Content ◽  
Cash Flow ◽  
Economic Value ◽  
Value Added ◽  
Performance Measure ◽  
Residual Income ◽  
Economic Value Added ◽  
Significant Information ◽  
Operating Cash Flow ◽  
Level Of Significance

Proponents of the value based financial performance measure of Economic Value Added (EVA) argue that it is a major improvement over other traditional measures. This study investigates the relationship between EVA and market-adjusted share returns, and compares it to that of residual income, earnings and operating cash flow. Relative information content tests suggest that earnings have the strongest relationship with share returns. The results from the incremental information content tests indicate that although the EVA components provide statistically significant information content beyond that provided by residual income, the level of significance is low.

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