EVA AND TRADITIONAL ACCOUNTING-BASED FINANCIAL PERFORMANCE MEASURES: WHICH ONE IS REALLY INFORMATIVE IN EXPLICATING VARIATION IN SHAREHOLDERS’ VALUE ADDED? (original) (raw)

2017, International Research Journal of Management and Commerce

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.

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