Impact of EVA or Traditional Accounting Measures on MVA - A Study of BSE Listed Companies

Abstract

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The main aim of this paper is to know the superior impact of economic value added (EVA) or traditional accounting measures (i.e. return on assets and earning per share) for value maximisation. Market value added (MVA) is used as an indicator to test the impact and relationship with these variables. The study considers 190 listed companies selected from BSE (A Group). The study used fixed effects and random effects model as well as the Hasuman test to find out the appropriate model for the study. This study also used ordinary least squares regression as well as simple linear regression to know the impact. The study also used correlation to measure the relationship between EVA, selected traditional accounting measures and controlled variables on MVA. The study finds no evidence in support of EVA as a superior indicator for value creation than traditional accounting measures. The study reveals that it is better to measure financial performance through traditional accounting measures than EVA. The study is useful to the managers who are in the process of maximizing the wealth of shareholders’ as well as to the investors for a sound investment decision. The study is useful to all the stakeholders’ who require financial results of the companies for various purpose. This study covers the required controlled variables and relates to the MVA with financial measures.

Keywords: Economic Value Added, Market Value Added, Traditional Accounting Measures, Value Maximisation, Performance Measurements, Controlled Variables

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