Abstract
Investors make solid decisions when evaluating their investments based on positive indicators the firm may show in the future, rather than based on its past performance. Accordingly, this study aims to investigate the relationship between performance criteria and the most significant value-based criterion; Economic Value Added (EVA). Further, it evaluates the impact of future EVA values on the bank value. Panel Data Analysis and the OLS Regression model are used to estimate the regression equation. The analysis is performed using data of 10 banks on the BIST Banks Index over the period 2011 to 2020. Furthermore, the EVA criterion was converted into standardized EVA(SEVA) by dividing EVA by total assets. The OLS regression analysis results revealed that the model’s explanatory power for the SEVA variable is 71.92%. The three variables that have positive correlation with SEVA are earnings per share (EPS) and TOBINQ rates at the 1% significance level and the price to sales growth rate with a degree of significance at 10%. Regarding the Panel Data Analysis results, while the explanatory power of the SEVA variable is 72.14%, its association with the EPS and TOBINQ criteria was found to be significant at the 1% significance level. The empirical investigations reveal that the model developed using the future SEVA as a proxy for bank value is found to be promising, and it is accepted that the SEVA variable can be used instead of the bank value.
Highlights
Nowadays, investors mainly focus on the real value of an asset, which is identified by comparing the firm value with its market value
The empirical investigations reveal that the model developed using the future SEVA as a proxy for bank value is found to be promising, and it is accepted that the SEVA variable can be used instead of the bank value
This paper provides a test of the relationship between the performance criteria and the Economic Value Added (EVA), which is the most often used value-based criterion
Summary
Investors mainly focus on the real value of an asset, which is identified by comparing the firm value with its market value. Defining the real value and how it should be quantified realistically is considered a tricky problem, since a firm’s value will vary greatly depending on the firm’s state, its competitive position, the experts who will conduct the valuation, the purposes of the valuation and the valuation techniques. Prior studies that have noted the firm value are mostly based on the relationship between the firm value and performance (operating, financial, etc.). According to the assumption underlying these studies, the value of a firm increases with an improvement in its activities. The firm value is closely related to the firm administration, capital structure, mergers, and a country’s legal system. Each factor affecting the firm’s cash flows and cost of capital will have an impact on firm value to different degrees. Predetermining the effects of these factors will contribute to the realistic calculation of the firm value
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