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Economic value added and shareholders' wealth creation: the portrait of a developing Asian country

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  • Madan Lal Bhasin
  • Junaid M. Shaikh

Abstract

Managing and creating shareholder values have become a widely accepted corporate objective since the last decade. Of late, companies in India have started focusing on shareholders wealth creation by adopting value-based models for measuring shareholder value that helps to align managerial decision making with firm preferences. In recent years, the EVA framework is gradually replacing the 'traditional' measures of financial performance on account of its robustness and its immunity from 'creative' accounting. This study examines the value-creation strategies of selected Indian companies by analysing whether EVA better represents the market-value of these companies in comparison to conventional performance measures. In this regard, EVA and the conventional measures of corporate performance, such as, RONW, ROCE and EPS are analysed. Moreover, ANOVA, trend analysis and regression analysis are used for analysing the data. The study indicates that "there is no strong evidence to support Stern Stewart's claim that EVA is superior to the traditional performance measures in its association with MVA". During 2010-11, just 17 Indian companies, from a sample of 500, were providing EVA disclosures in their annual reports.

Suggested Citation

  • Madan Lal Bhasin & Junaid M. Shaikh, 2013. "Economic value added and shareholders' wealth creation: the portrait of a developing Asian country," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 5(2), pages 107-137.
    • Handle: RePEc:ids:injmfa:v:5:y:2013:i:2:p:107-137
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    Citations

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    Cited by:

    1. Merugu Venugopal & Bhanu Prakash Sharma G. & Ravindar Reddy M., 2018. "Impact of Capital Structure on Shareholder Value in Indian Pharmaceutical Industry: An Empirical Approach Through Created Shareholder Value," Global Business Review, International Management Institute, vol. 19(5), pages 1290-1302, October.
    2. Christy FLORENCE & Yanuar Nanok SOENARNO, 2022. "Healthcare Companies Performance before and during Covid-19: Empirical Evidence from 150 companies in Indonesia, Malaysia, and Singapore," Business & Management Compass, University of Economics Varna, issue 1-2, pages 91-106.
    3. Hanan Ali Al-Awawdeh & Sa¡¯ad Abdul Kareem Al-Sakini, 2018. "The Impact of Economic Value Added, Market Value Added and Traditional Accounting Measures on Shareholders¡¯ Value: Evidence from Jordanian Commercial Banks," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(10), pages 1-40, October.
    4. Sujata Behera, 2020. "Does the EVA valuation model explain the market value of equity better under changing required return than constant required return?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-23, December.
    5. Ali Ihsan Akgun & Famil Samiloglu & Ali Osman Oztop, 2018. "The Impact of Profitability on Market Value Added: Evidence from Turkish Informatics and Technology Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 105-112.
    6. abbas, asad, 2024. "Robotic Process Automation (RPA) and AI in Business Process Optimization," OSF Preprints hwtye, Center for Open Science.
    7. Sliman S. Alsoboa, 2017. "The Influence of Economic Value Added and Return on Assets on Created Shareholders Value: A Comparative Study in Jordanian Public Industrial Firms," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(4), pages 63-78, April.
    8. Miron Vasile Cristian Ioachim & Focsan Eleonora Ionela, 2017. "The Analysis Of The Performance Of Companies Based On The Economic Value Added," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 181-190, February.
    9. Tina Maria Hintringer & Vito Bobek & Franko Milost & Tatjana Horvat, 2021. "Innovation as a Determinant of Growth in Outperforming Emerging Markets: An Analysis of South Korea," Sustainability, MDPI, vol. 13(18), pages 1-23, September.
    10. Raquel Lopes Oliveira & Liliane Dolores Fagundes & Renato da Silva Lima & Marcelo Montaño, 2020. "Discrete event simulation to aid decision-making and mitigation in solid waste management," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 25(1), pages 67-85, January.

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