Between Parcimony and Complexity: Comparing Performance Measures for Romanian Banking Institutions
The main objective of this study is to establish the relationship between traditional measures of performance (ROE, ROA and NIM) and EVA in order to gain some insight about the relevance of using more sophisticated performance measurements tools. Towards this end the study uses two acknowledged statistical measures: Kendall’s Tau and Spearman rank correlation Index. Using data from 12 Romanian banking institutions that report under IFRS for the period 2006-2010 the results suggest that generally EVA is highly correlated with Residual Income in the years that present positive operational profits whereas for the years with negative outcome the correlation is low. ROA and ROE are the measure that best correlates with EVA for the entire period and thus -applying Occam’s razor- could be used as a substitute for more complex shareholder earnings measures.
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- Dennis G. Uyemura & Charles C. Kantor & Justin M. Pettit, 1996. "Eva® For Banks: Value Creation, Risk Management, And Profitability Measurement," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(2), pages 94-109.
- Fiordelisi, Franco & Marqués-Ibáñez, David & Molyneux, Phil, 2010.
"Efficiency and risk in european banking,"
Working Paper Series
1211, European Central Bank.
- Asish K. Bhattacharya & B.V. Phani, 2005. "Economic Value Added --- A General Perspective," Finance 0504003, EconWPA.
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