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Association of EVA and accounting earnings with market value: evidence from India

Association of EVA and accounting earnings with market value: evidence from India Purpose – The purpose of this paper is to examine the claim of economic value added (EVA) proponents about its superiority as a corporate financial performance measure, compared to traditional performance measures in non‐financial Indian companies and provide empirical evidences. Design/methodology/approach – The paper uses a sample of 873 firms‐year observations from the Indian market and applies pooled ordinary least square regression to test the relative and incremental information content of EVA and other accounting‐based measures in explaining the market value added. Findings – The results about relative information content test reveal that NOAPT and OCF outperform EVA in explaining the market value of Indian companies. Incremental information content test shows that EVA makes a marginal contribution to information content beyond traditional performance measures such as NOPAT, OCF, EPS and RONW, etc. Overall the authors' results do not support the hypothesis that EVA is superior to traditional accounting‐based measures in association with market value of the firm. Originality/value – The authors conclude that non‐financial variables such employees, product quality and community satisfaction should be considered in order to capture the unexplained variation in the market value of the firm. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia‐Pacific Journal of Business Administration Emerald Publishing

Association of EVA and accounting earnings with market value: evidence from India

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Publisher
Emerald Publishing
Copyright
Copyright © 2011 Emerald Group Publishing Limited. All rights reserved.
ISSN
1757-4323
DOI
10.1108/17574321111169795
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the claim of economic value added (EVA) proponents about its superiority as a corporate financial performance measure, compared to traditional performance measures in non‐financial Indian companies and provide empirical evidences. Design/methodology/approach – The paper uses a sample of 873 firms‐year observations from the Indian market and applies pooled ordinary least square regression to test the relative and incremental information content of EVA and other accounting‐based measures in explaining the market value added. Findings – The results about relative information content test reveal that NOAPT and OCF outperform EVA in explaining the market value of Indian companies. Incremental information content test shows that EVA makes a marginal contribution to information content beyond traditional performance measures such as NOPAT, OCF, EPS and RONW, etc. Overall the authors' results do not support the hypothesis that EVA is superior to traditional accounting‐based measures in association with market value of the firm. Originality/value – The authors conclude that non‐financial variables such employees, product quality and community satisfaction should be considered in order to capture the unexplained variation in the market value of the firm.

Journal

Asia‐Pacific Journal of Business AdministrationEmerald Publishing

Published: Sep 27, 2011

Keywords: India; Corporate finances; Performance measures; Economic value added (EVA); Traditional performance measures; Market value added (MVA); Relative information content; Incremental information content

References