IS ECONOMIC VALUE ADDED MORE ASSOCIATED WITH STOCK PRICE THAN ACCOUNTING EARNINGS? EVIDENCE FROM PAKISTAN (original) (raw)
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Journal of Accounting and Finance in Emerging Economies, 2021
The purpose of this study is to examine the comparative relationship of value-added and conventional financial performance indicators with stock returns of listed companies of Pakistan Stock Exchange. Stock Return (SR) is used as an outcome variable, whereas, for measuring explanatory variables, Traditional Financial Performance indicators includes return on assets (ROA), return on equity (ROE), Return on Capital Employed (ROCE) and Earnings Per Share (EPS) whereas modern performance indicators is measured through economic value added (EVA), economic value added movement (EVAM), economic value added spread (EVAS). The sample consists of 107 companies and having 856 observations of non-financial sector listed on Pakistan Stock Exchange (PSX) for the time period 2011 to 2018. Findings reveal that stock returns are more influenced by the value that is created by listed companies for their shareholders than the accounting profits. The study aims at providing useful information for the...
EVA can be used for the purposes of setting organizational goals, performance measurement, determining bonus, communication with shareholders and investors, motivation of managers, capital budgeting, corporate budgeting, corporate valuation, etc. The study is aim to find the effect of economic value added (EVA) on stock return of companies listed at KSE-100 index. Research model uses the panel data technique. A sample of 59 listed selected companies out of 100 companies listed at KSE. Data collected on annual basis, interpreted and analyzed from the year 2006 to 2010. The model is estimated for sample companies in different industrial group levels. Results indicate that the value of the stock is affected by variable economic value added (EVA) and it is significant at a level less than 10%. Economic Value Added (EVA) is a key performance index that initiates or motivates companies to find out ways to increase efficiency of capital utilization and consequently produce a superior operating performance, and therefore should in theory reflect a stock's intrinsic value.
IAEME PUBLICATION, 2020
The main aim of corporate finance is creation of shareholder value. The term shareholder value creation has become quite popular in the recent times attracting much debate and attention from theorists of corporate finance all over the world. Studies were conducted to determine the measures that reflect shareholder value. Initially, many financial theorists explored the adaptability of conventional accounting-based performance measures like EPS, ROA, ROE etc. for measuring shareholder value. Later, as the concept of Value based Management evolved, a new value-based measure known as Economic Value Added (EVA) came into limelight which was presumed to be the most relevant and significant measure in revealing the true value of firms. Many studies were conducted examining the superiority of EVA over traditional accounting-based measures of performance in explaining shareholder value as indicated by Stock returns, MVA etc. Nevertheless, there were not conclusive evidence that established the best measure of shareholder value. This paper explores the validity of EVA and traditional accounting-based performance measures like ROA, ROE, EPS, PAT in explaining Stock Returns and MVA from the context of Indian capital markets. A sample of 55 manufacturing companies belonging to CNX NIFTY 100 were analyzed over a period of ten years from 2008-09 to 2018-19. Panel data regression models were developed to investigate the value relevance of EVA and traditional performance measures on shareholder value. All the performance measures at levels and change positions together were significantly value relevant in explaining the changes in shareholder value in the context of Indian
International Research Journal of Management and Commerce, 2017
In early 1990’s a classic swing of the company’s focus over shareholders wealth maximization had led to emerge an alternate approach of performance measures bearing in mind the economic profit as key input which are popularly known as modern value based measures of financial performance. Such measures especially Economic Value Added (EVA) has gained enough mileage and has become increasingly popular both as a decision making tool and as a performance measure tool among investors. But Indian investors still focus on traditional measures while making investment decision and in valuation of companies. Thus in this study, an attempt has made to examine and assess the relative and incremental information content of various financial performance measure (ROA, ROCE, ROE, and EPS) and firm’s EVA in explaining variation in Shareholders’ Value Added for 50 reputed Indian firms listed in BSE for the period from 1st April 2006 to 31st March 2016 to recognize whether EVA can be applied by Indian investors in their investment decision making and whether EVA can be a preferred measures in valuation of companies. Relevant statistical tools and techniques along with specific statistical test such as ‘t’ test, ‘F’ test ,Co-linearity test (VIF) and Akaike information Criterion test (AICc) have also been applied at precise places for analyzing the data used in the study. The study through relative information content test has registered the evidence of the greatest value-relevance of EVA as it possesses the highest information power in explaining the variations in the Shareholders’ Value Added followed by ROE, EPS, ROCE, and ROA. Incremental information content test also suggests that EVA adds substantial explicatory power to traditional performance measures in explaining variation in Shareholders’ Value Added.
2013
Currently most analysts believe that market’s value added is a major indicator in assessing the shareholders’ wealth increase. Therefore, one purpose of the present paper is to specify criteria which are closely related to this issue and are capable of assessing the performance of economic units and ultimately, their wealth in a more accurate fashion. This paper examines the relationship between moderated economic value added as well as some accounting and financial criteria such as return on stock, earnings per share (EPS), return on assets and return on equities with the market’s value added as an external indicator of value-creation (the study’s dependent variable) between 2006 and 2010 using the pooled data method. Results indicate that all study variables are in direct linear and significant relationship with market value added at a 95% confidence level. At the same time, the results suggest that moderated economic value added, after returns on equities, has the strongest relat...
Is economic value added more associated with stock return than accounting earnings? The UK evidence
International Journal of Managerial Finance, 2006
PurposeThe paper seeks to examine the claim of EVA® advocates of its superiority as a financial metric compared with other measures.Design/methodology/approachThe paper uses a sample of 2,252 firm‐year observations from the UK market and applies panel data regressions to test the relative information content of EVA and other accounting measures and the incremental information content of EVA components in explaining stock return.FindingsIt is found that net operating profit after tax and net income outperform EVA and residual income in explaining stock return; it was also found that accruals and operating cash flow have significant incremental information content, while the accounting adjustments of EVA proponents have significantly less contribution in explaining stock return. Yet the paper concludes that other variables must be considered in order to capture the unexplained variation in stock return models.Research limitations/implicationsFuture research should include US and UK da...
Value Relevance of Accounting Information in Explaining Stock Returns in Sri Lanka
International Journal of Business and Management
The value relevance of accounting information is an important area in accounting researches. However the literature provides contradictory conclusions on the value relevance of accounting information in different stock exchanges and there is a very limited knowledge in this regard in Sri Lankan context. Hence this study endeavored to investigate the value relevance of accounting information in explain stock returns considering three traditional accounting performance measures: Earnings Per Share (EPS), Return on Equity (ROE) and Return on Investment (ROI) as the proxy for accounting information. The study was conducted with the hypothesis that the traditional accounting performance measures are significant in explaining stock returns in Sri Lanka. A sample of 1695 firm year observations were used for the study covering 113 companies in Colombo Stock Exchange for fifteen years period from 1999 to 2013. This study used Easton and Harris (1991) formal valuation model. Panel data regres...
2013
Maximization of wealth is the major purpose of a business unit. Nowadays, economic value added (EVA) is considered to be the most important criterion for evaluation of internal performance. On the other hand, stock return is another key factor in decisions of the stock. It provides some information which is used by many potential and actual investors for financial analysis and prediction. Thus, the present study aims at evaluating the relationship between economic value added and stock return of companies listed at Tehran Stock Exchange from 2004 to 2010.The samples are chosen by the use of systematic elimination method and include 70 companies. Here, EVA is the dependent variable and stock return is the independent variable. The study proposes a hypothesis explaining the relationship between economic value added and stock return. Excel and SPSS 17 are used for data analysis. Statistical methods include the correlation coefficient (R), determination coefficient, significant t-and f-...
Management and Administrative Sciences Review, 2015
Maximization of wealth is the major purpose of a business unit. Nowadays, economic value added (EVA) is considered to be the most important criterion for evaluation of internal performance. On the other hand, stock return is another key factor in decisions of the stock. It provides some information which is used by many potential and actual investors for financial analysis and prediction. Thus, the present study aims at evaluating the relationship between economic value added and stock return of companies listed at Tehran Stock Exchange from 2004 to 2010.The samples are chosen by the use of systematic elimination method and include 70 companies. Here, EVA is the dependent variable and stock return is the independent variable. The study proposes a hypothesis explaining the relationship between economic value added and stock return. Excel and SPSS 17 are used for data analysis. Statistical methods include the correlation coefficient (R), determination coefficient, significant t-and f-statistics. Results of testing the hypothesis with linear regression method indicate a significant and positive relationship between economic value added and stock return.
The Relationship between Stock Return and Economic Value Added (EVA): A Review of KSE-100 Index
SSRN Electronic Journal, 2012
The research is conducted in order to exhibit the relationship between stock return and economic value added (EVA) as compare to the relationship with other variable such as net income (NI) and operating cash flow (OCF) with in Pakistani stock Market. It is evident from the study that the contribution of Operating cash flow is higher as compare to EVA and NI which is a prediction of the least contribution of the EVA in stock return as shown by the individual regression analysis of these variables with stock return. Finally EVA is negatively contributing to the stock return as compare to the other variable shown both by regression and Pearson correlation.