Market value added and traditional accounting criteria: Which measure is a best predictor of stock return in Malaysian companies

Document Type : Research Paper

Author

Department of Accounting, Birjand Branch, Islamic Azad University, Birjand, Iran

Abstract

This study tests the hypothesis that market value added (MVA) is more highly associated with stock return (SR) than traditional performance measures. The purpose of this study is to provide empirical evidence on the relative and incremental information content of MVA and traditional performance measures, namely, net income (NI), net operational profit after tax (NOPAT), and earning per shares (EPS). The sample involved 395 non-financial companies listed in the main market of Bursa Malaysia over the period 2002–2011. To analyze the hypotheses panel data regression methods were employed. The results indicated that accounting measures (NI, NOPAT and EPS) have higher relative information content with stock return compared to MVA. Thus, the results do not support the hypothesis that MVA is superior to traditional accounting measures in association with stock return. Moreover, the findings showed that MVA has incremental information content with stock return compared to accounting measures. Consequently, MVA is a useful measure in describing the firm’s stock return in Bursa Malaysia. Therefore, Malaysian companies can use MVA with traditional measures (NI, NOPAT, and EPS) in evaluating companies’ performance.

Keywords

Main Subjects

References

Al Mamun, A. & Abu Mansor, S. (2012). "EVA as Superior Performance Measurement Tool". Modern Economy, 3(3), 310-318.
Arabmazar-yazdi, M. (1995). Incremental Information Content of Cash flows and Accrual. Doctor Philosophy, Faculty of Management, University of Tehran. (In Persian)
Asadi, A.R., Zendeh-del, A. & Kianinezhad, A. (2013). "Relation of Information Content of Economic Value Added and Traditional Measures with Market Value Added". Accounting and Auditing Review, 20(2), 1-18. (In Persian)
Baltagi, B. H. (2008). Econometrics. (5th ed.): springer.
Baum, C.L., Saver, L. & Strickland, T. (2004). "EVA, MVA and Compensation: Further Evidence". American Business Review, 22(2), 82-87.
Biddle, G.C., Seow, G.S. & Siegel, A.F. (1995). "Relative versus Incremental Information Content". Contemporary Accounting Research Journal, 12(1), 1-23.
Biddle, G.C., Bowen, R.M. & Wallace, J.S. (1997). "Does EVAt Beat Earnings? Evidence on Associations with Stock Returns and Firm values". Journal of Accounting and Economics, 24(3), 301-336.
Brigham, E.F. & Ehrhardt, M.C. (2005). Financial Management Theory and Practice. South - Western, United States of America: Infotrac College Edition.
Chen, S. & Dodd, J.L. (2001). "Operating Income, Residual Income And EVA™: Which Metric Is More Value Relevant?". Journal of Managerial Issues, 13(1), 65-86.
Darabi, R. & Esfandiyari, E. (2009). "The Relationship between REVA, EBIT, and OCF with Stock Price in Tehran Stock Exchang". Journal of Financial Accounting and Auditing, 1(1), 121- 144.
Davvani, G. (2004). Stock Exchange and Pricing of Stocks.Tehran, Iran: Nashre Nekhostin. (In Persian)
De Wet, J. (2005). "EVA versus Traditional Accounting Measures of Performance as Drivers of Shareholder Value – A Comparative Analysis". Meditari Accountancy Research, 13(2), 1-16.
De Wet, J.H. (2012). "Executive Compensation and the EVA and MVA Performance of South African Listed Companies". Southern African Business Review 16(3), 57-80.
Edvinsson, L. & Malone, M.S. (1997). Intellectual Capital: Realizing Your Company's True Value by Finding Its Hidden Brainpower. New York: Harper Business.
El Mir, A. & Seboui, S. (2008). "Corporate Governance and the Relationship between EVA and Created Shareholder Value". Corporate Governance, 8(1), 46-58.
Erasmus, P. (2008a). Evaluating Value Based Financial Performance Measures. Doctor Philosophy (PhD.), Stellenbosch University.
Erasmus, P. (2008b). "Value Based Financial Performance Measures: An Evaluation of Relative and Incremental Information Content". Corporate Ownership & Control, 6(1), 66-77.
Ghanbari, A.M. & More, V. (2007). "The Relationship between Economic Value Added and Market Value Added: An empirical analysis in Indian Automobile Industry". The IUP Journal of Accounting Research and Audit Practices, 6(3), 7-22.
Goh, P.C. (2005). "Intellectual Capital Performance of Commercial Banks in Malaysia". Intellectual Capital, 6(3), 385-396.
Hajiabbasi, M., Kaviani, M., Samadi Largani, N., Samadi Largani, M. & Montazeri, H. (2012). "Comparison of Information Content Value Creation Measures (EVA, REVA, MVA, SVA, CSV and CVA) and Accounting Measures (ROA, ROE, EPS, CFO) in Predicting the Shareholder Return SR) Evidence from Iran Stock Exchange". ARPN Journal of Science and Technology, 2(5), 517-521.
Holiana, J.M. & Reza, M.A. (2011). "Firm versus Industry Effects in Accounting and Economic Profit Data". Applied Economics Letters, 18(3), 527-535.
Huang, J. & Wang, J. (2008). "Market Liquidity, Asset Prices, and Welfare". NBER Working Paper serise (14058). from http://ssrn.com/abstract=1009568.
Irala, L. R. (2005). "EVA: The Right Measure of Managerial Performance?". Indian Journal of Accounting & Finance, 119(2), 1-10.
Ismail, I. (2006). Economic Value Added (EVA): Its Usefulness in Predicting Company Performance in Malaysia. PhD Thesis, Faculty of Business and Accounting, University of Malaya, Kuala Lumpur.
Ismail, I. (2011). "Company Performance in Malaysia after the 1997 Economic Crisis: Using Economic Value Added (EVA) as a Predictor". African Journal of Business Management, 5(7), 3012-3018.
Jabbarzadeh-Kangarlouei, S., Motavassel, M., azizi, A. & Sarbandi Farahani, M. (2012). "The Investigation of the Impact of Ownership Concentration on Financial Performance Measurment Criteria and Market Value Added". International Journal of Economics and Management Sciences, 1(9), 44-51.
Kamath, G. B. (2007). "The Intellectual Capital Performance of the Indian Banking Sector". Journal of Intellectual Capital, 8(1), 96-123.
Karpik, P. & Belkaoui, A. (1990). "The Relative Relationship between Syetematic Risk and Value Added". International Financial Management and Accounting, 1(3), 256-276.
Khan, S., Chouhan, V., Chandra, B. & Wami, S. (2012). "Measurement of Value Creation Vis-À-Vis EVA: Analysis of Select BSE Companies". Pacific Business Review International, 5(3), 114-131.
Kramer , J.K. & Peters, J.R. (2001). "An Interindustry Analysis of Economic Value Added as a Proxy for Market Value Added". Journal of Applied Finance, 11(1), 41-49.
Moeinadin, M., Mansouri, E. & Zare Nikooparvar, M. (2011). "Investigating the Power of Accounting and Economic Criteria at Stock Return Determinant". International Review of Business Research Papers, 7(4), 84-93.
Nakhaei, H., Nik Intan, H. & Melati, A. (2013). "Analyzing the Relationship Between Economic Value Added (EVA) and Accounting Variables with Share Market Value in Tehran Stock Exchange (TSE)". Middle-East Journal of Scientific Research, 16(11), 1589-1598.
Nakhaei, H., Nik Intan, H. & Melati, A. (2014). "Analyzing the Relationship between Economic Value Added and Accounting Measures with Share Market Value (MV) in Tehran Stock Exchange (TSE)". International Research Journal of Finance and Economics, 1(118), 146-152.
Nakhaei, H., Nik Intan, H., Melati, A. & Nakhaei, K. (2012). "Performance Evaluation Using Accounting Variables (Net Profit and Operational Profit) and Economic Measures". International Journal of e-Education, e-Business, e-Management and e-Learning, 2(5), 443-448.
Nakhaei, H., Nik Intan, H., Melati , A. & Nakhaei, K. (2013). "Evaluation Of Company Performance with Accounting and Economic Criteria In Bursa Malaysia". Journal of Global Business and Economics, 6(1), 49-63.
Narimani, A. (2011). Applied Econometrics. Tehran, Iran: Naghoos Publication.
Noravesh, I. & Mashayekhi, B. (2004). "Incremental Information Content of Economic Value Added (EVA) and Cash Value Added (CVA) Beyond Accounting Profit (AP) and Oprerational Cash Flow (OCF)". Financial Research, 6(17), 131-150. (In Persian)
Noravesh, I., Salehy, F. & Karami, G. (2004). "Investigating the relation between Operational Cash Flows, Operational Profit and Economic Value Added with Created Shareholder Value". The Iranian Accounting and Auditing Review, 11(37), 121-144. (In Persian)
Parvaei, A. & Farhadi, S. (2013). "The Ability of Explaining and Predicting of Economic Value Added (EVA) versus Net Income (NI), Residual Income (RI) and Free Cash Flow (FCF) in Tehran Stock Exchange (TSE)". International Journal of Economics and Finance, 5(2), 67-77.
Peixoto, S. (2002). "Economic Value Added: Appplication to Portuguese Public Companies". Journal of Accounting Portuguese, 3(6), 25-40.
Pourali, M.R. & Roze, Z. (2013). "The Relationship between Market Value Added with Refined Economic Value Added and Performance Accounting Criteria in the Firms listed in the Tehran Stock Exchange". International Research Journal of Applied and Basic Sciences, 4(6), 1636-1645.
Rahnamay-Roodposhti, F., Nikomaram, H. & Shahverdiani, S. (2006). Strategic Financial Management. Tehran: Kasakavoosh.
Ramana, D.V. (2005). "Market Value Adaed and Economic Value Added: Some Empirical Evidence". Working Paper, evailable ssrn website.
Shariari, A. (2002). Survey Information Content of Value Added Compairson to Profit and Operational Cash Flow. Master of Art, Islamic Azad University, Tehran branch, Tehran. (In Persian)
Sharma, A.K. & Kumar, S. (2010). "Economic Value Added (EVA)- Literature Review and Relevant Issues". International Journal of Economics and Finance, 2(2), 200-220.
Stern, J.M., Stewart, G.B. & Chew, J., D.H. (1995). "The EVA Financial System". Journal of Applied Corporate Finance, 8(2), 32-46.
Talebnia, G. & Shojaa, E. (2011). "Investigating the Relation between Market Value Added (MVA) To Earning Ratio with Economic Value Added (EVA) To Earning Ratio (Tehran Stock Exchange)". Management Accounting, 4(8), 47-60.
Wong, P.H. (2005). The Impact of Economic Value Added (EVA) and Traditional Performance Based Measures on Stock Returns: Evidence from Malaysia. PhD Thesis, Universiti Sain Malaysia (USM), Penang, Malaysia.
Worthington, A.C. & West, T. (2004 ). "Australian Evidence Concerning the Information Content of Economic Value-Added". Australian Journal of Management, 29(2), 201-223.
Yaghoob-nejad, A. & Akaf, A. (2007). "The Relationship between Evaluation Performance Measures (EVA, RI, ROS, ROI) and Market Value Added (MVA) in Companies Accepted in Tehran Stock Exchange (TSE)". Iranian Economic and Management Journal, 75, 77-89.
Yahaya, H.N. & Mahmood, W.M.W. (2011). "Creating Wealth for Shareholders: Evaluating the Performance of the Malaysia Property Companies". International Review of Business Research Papers, 7(2), 269-281.
Young, D. & O’Byrne, S.F. (2001). EVA and Value Based Management. New York: Mc Grow - Hill.
Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies)
Volume 9, Issue 2 - Serial Number 2
April 2016
Pages 433-455

Files

Share

How to cite

Statistics