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Shareholder Value Creation - Comparison of Traditional Accounting Measures and EVA as Predictors of MVA


Affiliations
1 Punjab Technical University, Punjab, India
2 School of Commerce and Management, Sri Guru Granth Sahib World University, Punjab, India
     

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An imperative task of the business organizations is to align all the efforts for increasing shareholder's wealth. Market value added (MVA) is one of the external indicators which determine whether management has created or destroyed value. So the main aim of the paper is to evaluate traditional accounting measures and economic value added (EVA) as predictors of MVA so that it would lead to better management decisions for increasing shareholder value. To achieve this, the study compared the relative and incremental information content of 11 traditional accounting measures with that of EVA for a sample of 201 companies covering a period of eight years starting from 2005 till 2012. Findings of the study reveal that only six independent variables, namely, EPS, DPS, ROE, DTR, NPM and EVA were able to establish significant correlation with MVA and hence are included in regression models. The regression results for relative and incremental information content establish EVA's superiority over traditional accounting measures in predicting MVA. Based on the findings, the study suggests usage of EVA as value driver and Indian companies should start providing information regarding Economic Value created by them so as to let investors know the performance of the company and make correct investment decision.

Keywords

Shareholder Value Creation, Correlation Analysis, Regression Analysis, Economic Value Added, Market Value Added.
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  • Shareholder Value Creation - Comparison of Traditional Accounting Measures and EVA as Predictors of MVA

Abstract Views: 428  |  PDF Views: 3

Authors

Tania Mengi
Punjab Technical University, Punjab, India
B. S. Bhatia
School of Commerce and Management, Sri Guru Granth Sahib World University, Punjab, India

Abstract


An imperative task of the business organizations is to align all the efforts for increasing shareholder's wealth. Market value added (MVA) is one of the external indicators which determine whether management has created or destroyed value. So the main aim of the paper is to evaluate traditional accounting measures and economic value added (EVA) as predictors of MVA so that it would lead to better management decisions for increasing shareholder value. To achieve this, the study compared the relative and incremental information content of 11 traditional accounting measures with that of EVA for a sample of 201 companies covering a period of eight years starting from 2005 till 2012. Findings of the study reveal that only six independent variables, namely, EPS, DPS, ROE, DTR, NPM and EVA were able to establish significant correlation with MVA and hence are included in regression models. The regression results for relative and incremental information content establish EVA's superiority over traditional accounting measures in predicting MVA. Based on the findings, the study suggests usage of EVA as value driver and Indian companies should start providing information regarding Economic Value created by them so as to let investors know the performance of the company and make correct investment decision.

Keywords


Shareholder Value Creation, Correlation Analysis, Regression Analysis, Economic Value Added, Market Value Added.

References