Applying financial tools to marketing decisions (original) (raw)
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International Journal of Academic Research in Accounting, Finance and Management Sciences, 2014
This study investigates the importance of economic value added for the shareholders wealth maximization. Economic value added (EVA) is a value based performance measurement tool that inclines the agency conflict issues between managers and shareholders. Using a sample of 28 construction public listed companies in main board of Bursa Malaysia and using panel data with fixed effects during the period of 2003 to 2012, the findings of the study revealed that there is a positive and significant relationship between EVA and shareholder's wealth maximization. The more the managers produce EVA, the more shareholders' wealth maximization will be created. The finding shows significant support for EVA, but EVA was not reported by the companies and is not been used by investors for their investment decisions. Thus it is recommended for the managers to focus more attention to the criteria of EVA in evaluating shareholder's value.
Reconsidering the Measures of Shareholders Value: A Conceptual Overview
Corporate Ownership and Control, 2008
Economic and finance theory dictates that the major purpose of a firm is to create value. Value can be considered from different points of view. Advances in two distinctly different functional areas of business, namely marketing and financial management, initiated a reconsideration of our understanding of what constitutes a firm’s value. On the one hand marketing was called upon to become more financially accountable and at the same time intangible assets on balance sheets require that the asset or group of assets should be separately identifiable, protected, transferable and enduring. Brands represent a significant fraction of the intangible, and hence, total value of many firms. This situation made various researchers call for the integration of the disciplines of marketing and finance. The blend of empirical customer research and financial measures to produce measures such as, for instance, CLV holds a great deal of promise to support our understanding of value creation in firms ...
EVA and shareholder value creation: an empirical study
2007
In recent years, a variant of residual income often called Economic Value Added (EVA)' or Economic Income (EI) has become a popular concern in academia and business communities. This study investigates the general hypothesis that EVA is more highly associated with shareholder wealth and firm values than are traditional performance measures. Two commonly used value-based performance metrics namely, Total Shareholder Return (TSR) and Tobin's Q are also considered to highlight the valuerelevance of EVA visa -vis these measures in predicting shareholder wealth. Using a sample of panel data of around 12,000 firm-year observations taken from the Stem Stewart 1000 EVA/MVA database and the DATASTREAM file over the period 1991-2002, this study finds compelling evidence that shareholder value is a function of EVA. This study also provides evidence consistent with the notion that EVA outperforms other traditional performance measures in explaining shareholder wealth. Valuerelevance tests reveal EVA to be more highly associated with shareholder wealth than TSR and Tobin's Q. The incremental tests also suggest that EVA possesses the largest explanatory power (or information usefulness) over TSR and Tobin's Q. These results conclusively support the claims made by EVA proponents and further support the potential usefulness of the EVA metric for internal and external performance. ' Economic Value Added or EVA is a relatively new measure of corporate performance developed and trademarked in the late 1980s by the US-based business consultants Stern Stewart and Co. (hereafter referred to as Stem Stewart).
An empirical Analysis of Linkage between Economic Value Added (EVA) and Market Value Added (MVA
Maximizing shareholder value has become the new corporate paradigm. Corporations in world wide have started disclosing EVA information from the beginning of 90s as a measure of corporate performance. It is believed that market value of a firm (i.e., the shareholders' wealth) would increase with the increase in EVA. Many studies conducted in US and India also confirmed this belief. EVA is a residual income that subtracts the cost of capital from the operating profits generated by a business. The present study makes an attempt to find the relevance of Stewart's claim that market value of the firm is largely driven by its EVA generating capacity in the Indian context. Based on the data from the annual reports of Dr Reddy's laboratories Ltd, over a period of five years, the study shows that market value of a firm can be well predicted by estimated future EVA streams. The study has also found that market value of the firm is explained more by current operational value than future growth value of the company.
EVA as a Financial Metric: the relationship between EVA and Stock Market Performance
European Journal of Business and Management, 2014
The present research study investigates the relationship between economic value added (EVA) and the stock market performance of 36 publicly traded companies in India. The study attempted to justify the claim that high EVA causes incremental gains in stock market. The daily stock prices from 2006 through 2012 were taken to study the relationship between EVA and stock market performance of 36 Nifty stocks. EVA of firms were compared with various accounting and market performance measures like ROA, ROE, ROS, CAPM Return, excess market premium and others. Results of the study find little support to the fact that high-EVA firms lead to higher stock market performance and shareholders' value creation. The author viewed that stock prices are more sensitive to growth expectation and these expectations are reflected in terms of higher stock returns as per the whim and fancies of the investors rather than the EVA information and strategy.
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.
Corporate performance and the measures of value added
In recent years, managers have turned their attention to the ways increasing the value of their companies. A number of competing measures have been developed and marketed by investment and consulting firms. This paper considers the ways in which value can be created or destroyed in a firm and looks at how to calculate the cost of capital used to measure the opportunity cost of investing funds in one particular business instead of others with equivalent risk. Next, we have a look at the four most widely used value enhancement measures including Economic Value Added, Cash Flow Return on Investment, Market Value Added, Cash Value Added and use an example to think of where these approaches yield similar results and where differences might occur. In conclusion, we summarize the new or unique points in these competing measures, establish the information they can give and explain how to use it when managing and creating shareholder value.
Linking Shareholder Value Creation to Marketing Equity: The Virtuous Circle of Marketing Investments
It includes topics identified by MSI member companies and academic trustees as being sufficiently important that they deserve intensive research attention. 6 It includes many from companies with well-known brands. 7 These topics include, for example: assessing the impact of marketing programs on financial metrics, assessing marketing program productivity, and linking intermediate marketing program outcomes to external financial metrics.
Economic Value Added and Traditional Accounting Measures for Shareholder’s Wealth Creation
Asian Journal of Accounting and Governance
This paper investigated performance measurement tools and shareholder's wealth relationships in the context of Malaysian public listed construction companies. Conventional measures are still utilized by many Malaysian listed companies even though it has been criticized by many researchers. Both traditional accounting measures and economic measures fail to reflect a company's true value due to the lack of long-term sustainability of a business. The study used panel data analysis techniques, particularly Error Correction Models (ECM) to test the relationship of error terms and panel Ordinary Least Square (OLS) regression to test the hypothesis. Panel data comprised of 280 observations over the period of 2003-2012 indicates that shareholder value is a function of performance measures. The results conclusively support the claims made by previous studies on the role of earnings per share, economic value added (EVA) and dividend payout ratio; and further support the potential usefulness of the performance metric for internal and external performance. Furthermore, market value added (MVA) is found to have a negative relationship with created shareholder value (CSV) contradicting with the theory that confirmed, the increase in shareholder value when there is an increase in stock market value and efficiency.
This study investigates the importance of economic value added for the shareholders wealth maximization. Economic value added (EVA) is a value based performance measurement tool that inclines the agency conflict issues between managers and shareholders. Using a sample of 28 construction public listed companies in main board of Bursa Malaysia and using panel data with fixed effects during the period of 2003 to 2012, the findings of the study revealed that there is a positive and significant relationship between EVA and shareholder’s wealth maximization. The more the managers produce EVA, the more shareholders’ wealth maximization will be created. The finding shows significant support for EVA, but EVA was not reported by the companies and is not been used by investors for their investment decisions. Thus it is recommended for the managers to focus more attention to the criteria of EVA in evaluating shareholder’s value.