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1 – 10 of 64
Article
Publication date: 1 January 2001

Andrew C Worthington and Tracey West

With increasing pressure on firms to deliver shareholder value, there has been a renewed emphasis on devising measures of corporate financial performance and incentive…

2044

Abstract

With increasing pressure on firms to deliver shareholder value, there has been a renewed emphasis on devising measures of corporate financial performance and incentive compensation plans that encourage managers to increase shareholder wealth. One professedly recent innovation in the field of internal and external performance measurement is a trade‐marked variant of residual income known as economic valueadded (EVA). This paper attempts to provide a synoptic survey of EVA's conceptual underpinnings and the comparatively few empirical analyses of valueadded performance measures. Special attention is given to the GAAP‐related accounting adjustments involved in EVA‐type calculations.

Details

Asian Review of Accounting, vol. 9 no. 1
Type: Research Article
ISSN: 1321-7348

Article
Publication date: 30 October 2009

Dimitrios I. Maditinos, Željko Šević and Nikolaos G. Theriou

The purpose of this paper is to investigate the explanatory power of two value‐based performance measurement models, Economic Value Added (EVA®) and shareholder value added (SVA)…

2075

Abstract

Purpose

The purpose of this paper is to investigate the explanatory power of two value‐based performance measurement models, Economic Value Added (EVA®) and shareholder value added (SVA), compared with three traditional accounting performance measures: earnings per share (EPS), return on investment (ROI), and return on equity (ROE), in explaining stock market returns in the Athens Stock Exchange (ASE).

Design/methodology/approach

The paper uses the Easton and Harris formal valuation model and employs both a relative and an incremental information content approach to examine which performance measure best explains stock market returns; and the explanatory power of the pairwise combinations of one value‐based performance measurement model and one traditional accounting performance measure in explaining stock market returns. For this purpose, pooled time‐series, cross‐sectional data of listed companies in the Athens Stock Exchange (ASE) over the period 1992‐2001 have been collected and modelled.

Findings

Relative information content tests reveal that stock market returns are more closely associated with EPS than with EVA® or other performance measures. However, incremental information content tests suggest that the pairwise combination of EVA® with EPS increases significantly the explanatory power in explaining stock market returns.

Practical implications

The results suggest that the market participants in the Greek stock market should pay additional attention to EVA® but they should also consider other determinants to develop their investment strategies.

Originality/value

The paper is one of the first studies on the value relevance of traditional accounting (EPS, ROI, and ROE) and value‐based (EVA® and SVA) performance measures in explaining stock market returns in the ASE. The results extend the understanding of the role of EVA® and SVA in explaining stock market returns in the ASE, and, moreover, whether they may affect investors' decisions in a continental European market with market characteristics similar to that of Greece.

Details

Journal of Modelling in Management, vol. 4 no. 3
Type: Research Article
ISSN: 1746-5664

Keywords

Article
Publication date: 1 December 2000

Rhoda Pierce‐Brown BA FCA PhD

The basis of this paper is a critical review of an article published in this journal, by Zafiris and Bayldon (JAAR, 5, 2, 2000), on Economic Value Added and Market Value Added

Abstract

The basis of this paper is a critical review of an article published in this journal, by Zafiris and Bayldon (JAAR, 5, 2, 2000), on Economic Value Added and Market Value Added. This review provides a detailed critique of the literature relating to EVA® and the underlying philosophy of the use of EVA® as a performance metric. Following this, there is a comment on the analysis provided by Zafiris and Bayldon and a review of the empirical evidence presented in support of their analysis. The paper demonstrates that the amendments to the EVA® model proposed by Zafiris and Bayldon are not original and are unlikely to result in a significant improvement to the usefulness of the original model.

Details

Journal of Applied Accounting Research, vol. 6 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 18 May 2010

S. Paulo

The purpose of this article is to investigate whether economic value added (EVA®) is a superior financial performance metric and creates market value added (MVA), as claimed by…

2031

Abstract

Purpose

The purpose of this article is to investigate whether economic value added (EVA®) is a superior financial performance metric and creates market value added (MVA), as claimed by Stern Stewart and Company, and therefore is consistent with the purpose and intent of the UK Companies Act of 2006 and the Sarbanes‐Oxley Act of 2002. If these claims can be sustained, then it could be argued that this valuation metric should form part of the Business Review, Section 417 of the UK Companies Act of 2006, and furthermore it could be an appropriate approach to the attainment of the corporate objective of the UK Companies Act of 2006, Section 172(1).

Design/methodology/approach

A survey was undertaken of journal articles published in mainstream academic journals from 1997 to 2008 that investigated the claims of Stern Stewart and Company that EVA® was a superior financial performance metric vis‐à‐vis other well‐established accounting and financial metrics. As the empirical evidence in support of these claims was not compelling, the epistemology and methodology of EVA® were examined, and were found to be deficient.

Findings

There is insufficient supportive evidence to validate the claims of EVA®; furthermore, from the perspective of epistemology and sound research methodology it is not possible to make a robust case for the unqualified use of EVA® in jurisdictions where the UK Companies Act of 2006 and the Sarbanes‐Oxley Act of 2002 apply. Directors who make unqualified use of this financial performance metric place themselves at unnecessary risk.

Originality/value

There is no evidence from the scrutiny of publicly available secondary sources to indicate that the implications of the UK Companies Act of 2006 and the Sarbanes‐Oxley Act of 2002, for the use of the financial performance valuation metric, EVA®, has been previously undertaken or published.

Details

International Journal of Law and Management, vol. 52 no. 3
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 1 November 2023

Ricardo Vinícius Dias Jordão and Davidson Junio Costa

This paper aims to analyze the economic-financial performance (EFP) and value creation (VC) in the Brazilian construction industry.

Abstract

Purpose

This paper aims to analyze the economic-financial performance (EFP) and value creation (VC) in the Brazilian construction industry.

Design/methodology/approach

Based on the theories of strategy and finance, a quantitative-qualitative, descriptive and explanatory and applied study was carried out, contrasting the performance of the Direcional company and the civil construction industry – both listed on the Brazilian Stock Exchange and the Over-the-Counter Market (B3)

Findings

The analysis of the EFP in the Brazilian construction industry shows that EZTEC, Helbor, Trisul and Direcional were the companies with the best EFP in the period. The analysis of the Economic Value Added (EVA®, henceforth EVA), as a VC metric and basis for assessing the relative technical efficiency score by Data Envelopment Analysis (DEA®, henceforth DEA), revealed that the companies Direcional, EZTEC, MRV and CR2 were considered efficient throughout the period covered. The multicriteria methodology for empirical testing of the EFP and VC allowed not only contrasts Direcional's results with the other companies of the construction industry but also offered a complementary tool for comparative analysis of enterprises of different sizes, structures and realities.

Research limitations/implications

Regardless of any contextual limitations, from a theoretical point of view, the research not only helps fill the research gap aforementioned but also expands knowledge on the topic and demonstrates how this multi-criteria methodology (integrating DEA and EVA) can be used to assess EFP and VC in addition to traditional tools. However, this new approach evaluates, at the same time, corporate and sectorial effectiveness by contrasting the efficiency and efficacy (simultaneously) in the generation of performance and value of a company in relation to the industry.

Practical implications

Significant implications for managerial practice could be noted by offering a tool to improve company performance and creating a competitive benchmarking process for analysts, investors, managers, financing agencies, shareholders, policymakers and business owners, as well as organizations and sectors in similar situations – who need to assess the EFP and VC holistically and improve their decision-making processes.

Originality/value

The uniqueness and innovation of this research come from the original multi-criteria methodology developed, applied and validated for analysis of EFP and VC. This methodology was operationalized through DEA applied to the companies' EVA, making it possible to compare corporate results and those of the whole industry in a balanced way – an unexplored issue in the literature, especially in emerging economies, opening several avenues for future research.

Objetivo

Este artículo tiene como objetivo analizar el desempeño económico-financiero (DEF) y la creación de valor (CV) en la industria de la construcción brasileña.

Diseño/metodología/enfoque

Con base en las teorías de estrategia y finanzas, se realizó un estudio cuanti-cualitativo, descriptivo, explicativo y aplicado, contrastando el desempeño de la empresa Direcional y de la industria de la construcción civil, ambas cotizadas en la Bolsa y Mercado Extrabursátil Brasileña (B3).

Hallazgos

El análisis de la DEF en la industria de la construcción brasileña muestra que EZTEC, Helbor, Trisul y la Direcional fueron las empresas con el mejor desempeño en el período. El análisis del Valor Económico Agregado (en adelante EVA), como métrica de CV y base para evaluar el puntaje de eficiencia técnica relativa mediante Análisis Envolvente de Datos (en adelante DEA), reveló que las empresas Direcional, EZTEC, MRV y la CR2 se consideraron eficientes durante todo el período cubierto. La metodología multicriterio para pruebas empíricas de la DEF y CV permitió no sólo contrastar los resultados de la Direcional con los de otras empresas del sector de la construcción, sino que también ofreció una herramienta complementaria para el análisis comparativo de empresas de diferentes tamaños, estructuras y realidades.

Originalidad y valor

La singularidad y la innovación de esta investigación provienen de la metodología original multicriterio desarrollada, aplicada y validada para el análisis de DEF y CV. Esta metodología fue operacionalizada a través de DEA aplicado al EVA de las empresas, permitiendo comparar los resultados corporativos y los de toda la industria de manera equilibrada – un tema inexplorado en la literatura, especialmente en las economías emergentes, abriendo varias vías para futuras investigaciones.

Limitaciones/implicaciones de la investigación

Independientemente de las limitaciones contextuales, desde un punto de vista teórico, la investigación no solo ayuda a llenar el vacío mencionado anteriormente, sino que también amplía el conocimiento sobre el tema y demuestra cómo esta metodología multicriterio (integrando DEA y EVA) puede utilizarse para evaluar el DEF y CV además de las herramientas tradicionales. Sin embargo, este nuevo enfoque evalúa, al mismo tiempo, la efectividad corporativa y sectorial contrastando la eficiencia y eficacia (simultáneamente) en la generación de desempeño y valor de una empresa en relación con la industria.

Implicaciones prácticas/de gestión

Se podrían observar implicaciones significativas para la práctica gerencial al ofrecer una herramienta para mejorar el desempeño de la empresa y crear un proceso de evaluación comparativa competitivo para analistas, inversionistas, gerentes, agencias financieras, accionistas, formuladores de políticas y propietarios de negocios, así como organizaciones y sectores en situaciones similares, que necesitan evaluar el DEF y el CV de manera integral y mejorar sus procesos de toma de decisiones.

Book part
Publication date: 28 April 2016

Nicolás Cachanosky and Peter Lewin

In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and…

Abstract

In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and average period of production, (2) we show that the ABCT has strong financial foundations (consistent with its microeconomic foundations), and (3) we offer examples of how to use the flexibility of this approach to apply ABCT to different contexts and scenarios.

Article
Publication date: 19 April 2011

Aleksandra Grajkowska

The main purpose of this study is to contribute to the theory of intellectual capital (IC) with the new IC valuation method based on the economic value added (EVA®) concept as…

3402

Abstract

Purpose

The main purpose of this study is to contribute to the theory of intellectual capital (IC) with the new IC valuation method based on the economic value added (EVA®) concept as well as to present the Innovation Funnel, which is a useful management method and tool from which companies would benefit.

Design/methodology/approach

The paper first explains the links and differences between IC and intellectual assets (IAs) and aims at improving the reader's understanding of the share of the two classes of shareholders, monetary capital investors and intellectual capital investors, of the innovative start‐ups. The paper provides practical guidance for use in IC valuation and financial management of innovation rather than a theoretical framework, and is based on the literature on innovation, IC, corporate finance as well as the practical experience of a few early stage venture capitals with whom the author cooperates.

Findings

The findings show a way of calculating fair share of an innovative company's shareholdings. The method reflects the risk adjusted future value of cash invested by monetary capital investors and a real market value of IC contributed by the founders. The paper also presents a method of financial management of innovation projects.

Research limitations/implications

The presented methods focus on creating shareholder value and on financial aspects of IC rather than on IC indicators and their graphical representation, hence, members of the IC community who seek more practical concepts may be more interested in the paper.

Originality/value

The paper proposes a practical perspective on the method for IC valuation, innovation projects' financial management, as well as fair division of a start‐up shares between intellectual and monetary capital investors that would be useful for venture capital officers, innovative companies founders and R&D centers' managers.

Details

Journal of Intellectual Capital, vol. 12 no. 2
Type: Research Article
ISSN: 1469-1930

Keywords

Open Access
Article
Publication date: 15 June 2023

John Henry Hall

The purpose of this paper is to determine if there is a link between corporate shareholder value creation and economic growth. The first objective of this paper is to determine…

1252

Abstract

Purpose

The purpose of this paper is to determine if there is a link between corporate shareholder value creation and economic growth. The first objective of this paper is to determine which specific shareholder value measurement best explains shareholder value creation for a particular industry. The next objective of the study is to establish, for each of nine different categories of firms examined, a set of value drivers that are unique and significant in expressing shareholder value for that particular category of firms. Lastly, the relationship between shareholder value creation and economic growth is tested.

Design/methodology/approach

To quantify and measure value creation, the paper investigates the various value creation measurements that are being applied. The next step is to ascertain whether various industries have different value creation measures that best explain value creation for the respective industries. Then, the value drivers of these specific value creation measures can be determined and their relationship with economic growth tested.

Findings

The results of this study indicate that each industry does have a specific shareholder value creation measurement that best explains shareholder value creation for that industry; for example, for five of the nine categories (industries) that were analyzed, market value added was found to be the best shareholder value creation measurement, but for capital-intensive firms and manufacturing firms, the Qratio is the best measure, while for the food and beverage industry, the market to book ratio was found to be a better measure of shareholder value creation than other measures tested. It was further found that an increase in corporate shareholder value creation is to the detriment of economic growth.

Originality/value

The contribution of the present study is its determination of a unique shareholder value creation measurement for particular industries. In addition, a specific set of variables per industry that create shareholder value is identified. Lastly, the important link between shareholder value creation and economic growth is exposed.

Details

Studies in Economics and Finance, vol. 41 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 3 April 2018

Maicon Gouvêa de Oliveira, Glauco Henrique de Sousa Mendes, Andrei Aparecido de Albuquerque and Henrique Rozenfeld

The purpose of this study is to identify the elements of the product-service system (PSS) business model of a Brazilian company that has been running it for almost 50 years. It…

1189

Abstract

Purpose

The purpose of this study is to identify the elements of the product-service system (PSS) business model of a Brazilian company that has been running it for almost 50 years. It describes the PSS business model and gives special attention to the financial aspects of PSS implementation and to contingent factors of this emerging country.

Design/methodology/approach

The research is based on a single case study. Data have been collected through interviews and document analysis. Results and implications are obtained using Canvas framework to structure information and comparison between theory and practice.

Findings

Results described in this paper show that the PSS design and implementation can be strongly influenced by financial and contingent factors. This case indicates that the implementation of PSS business models can follow diverse paths and configurations to fit with companies’ organizational features, local regulations and economic factors, including mixed transactional models and less demanding financial assessments.

Originality/value

This paper provides a roadmap of lessons learned from a multinational manufacturer that has been following the PSS business model for almost 50 years. This paper offers key insights concerning financial aspects and contingency factors that might influence servitization adoption.

Details

Journal of Business & Industrial Marketing, vol. 33 no. 3
Type: Research Article
ISSN: 0885-8624

Keywords

Article
Publication date: 1 March 2004

Ante Pulic

Taking into account the transformation in economic reality towards a knowledge economy it seems logical that we treat IC as a resource, equal to that land, physical assets, and…

4799

Abstract

Taking into account the transformation in economic reality towards a knowledge economy it seems logical that we treat IC as a resource, equal to that land, physical assets, and financial capital. This means that it is not anymore treated as a cost but as an investment. In order for the new system to be consistent we have to define a new index, namely the value creation efficiency of intellectual capital. Its empirical applications shows that while revenue, profit and GDP may indicate successful performance, IC efficiency may indicate the opposite, that value is being destroyed and not created.

Details

Measuring Business Excellence, vol. 8 no. 1
Type: Research Article
ISSN: 1368-3047

Keywords

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