Abstract
In 1991, Stewart launched the theory of economic value added (EVA) as a modern measure of financial performance assuring its ability in analyzing and improving the firm performance. Later on, in 2009, he introduced the economic value added momentum (EVA Momentum) as the single best firm financial performance measurement tool. Therefore, this study has the purpose of investigating the impact of EVA and EVA Momentum on firm financial performance indicators; return on assets (ROA) and return on equity (ROE) using Generalized Least Squares (GLS) regression. This paper is also aiming to contribute into announcing the economic value added measure with the highest explanatory power relevant to firm financial performance via conducting relative information content analysis along with Stepwise regression. Data were collected for companies listed in the Egyptian Stock Exchange over the period 2010-2019 excluding the financial sector. Statistical techniques are conducted using the statistical package of EViews-version 10. The results showed significant impact for both economic values added on firm financial performance, except for EVA with ROE. In addition, it was found that EVA Momentum could be considered as the most effective economic measure in improving and explaining the financial performance.
Highlights
Finding a superior evaluation tool for firm financial performance is considered as one of the most important fundamentals of recent financial researches
The results showed significant impact for both economic values added on firm financial performance, except for economic value added (EVA) with return on equity (ROE)
It was found that EVA Momentum could be considered as the most effective economic measure in improving and explaining the financial performance
Summary
Finding a superior evaluation tool for firm financial performance is considered as one of the most important fundamentals of recent financial researches. The literature review on economic values added and firm financial performance showed that till the date, there is a debate on the superior economic value added technique, EVA or EVA Momentum, in addition to their impact on corporate financial performance. This paper is mainly focused on assessing the impact of economic values added on firm financial performance, as to the best of our knowledge, a very few number of previous studies investigated this area of research. This paper is aiming as well to fill the literature gap of assessing EVA momentum as a better measurement tool for financial performance as claimed by Stewart (2009). The concluding section recapitulates the main findings and highlights the recommendations and limitations of the study
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