Abstract
This paper examines the market value added (MVA) of listed companies in Thailand. It is known that the major drawbacks of MVA are size and market return effects. Using the two additional approaches to improve MVA study – MVA change, and the market return adjusted of three-year growth rate of MVA – the better interpretations of MVA in the Thai market during 1999–2018 are obtained. The first approach reduces the market capitalization bias, while the second diminishes the effect of the overall market trend and the stability of firm’s current performance. This study finds that when the two alternative techniques are applied, the annual results of the MVA rankings are not consistent with those of the traditional MVA and thus lead to a new insight into such indicator. Therefore, this study advances the understanding of the market value added and value creation indicators.
Highlights
The owner’s wealth maximization is the ultimate goal of any business
Even though market value added (MVA) is a simple yet powerful performance indicator for listed companies regarding the owners’ wealth, it comes with certain limitations
Adjustments are needed to reduce misinterpretation of MVA obtained from calculation
Summary
The owner’s wealth maximization is the ultimate goal of any business. For listed companies, a stock return is the most accessible tool, which boosts shareholders’ prosperity. MVA is the difference between invested capital and the company’s market value. It illustrates the stockholder’s wealth creation capability during the entire company’s life. Since MVA is straightforward, this paper intends to offer one of the simplest tools for stock analysis, which benefits investors, corporations, and the market as a whole. Young companies have low market capitalizations and small firms, with high growth potential, are unlikely to have high market value added. The three-year growth rate of market adjustment MVA version adds a different dimension to the investigation It offers a longer perspective showing the stability of firm capability and mitigates the influence of the market conditions. This paper furthers the understanding of MVA and the overall firm performance measurement in Thai listed companies
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