Abstract
Economic Value Added (EVA) is a value-based accounting measure used by companies to measure the amount of value created for shareholders. EVA requires the conversion of accounting values to economic values. This conversion process is known as the EVA adjustment. If accounting values are not converted to economic values, the value of the EVA can be distorted. Previous studies have shown that companies are experiencing difficulties in implementing EVA adjustments. To reduce these difficulties, companies have decided to limit their EVA adjustments to ten or even fewer. The research problem is that if the appropriate adjustments are not made, an inaccurate EVA measure will be calculated. The aim of the research is to measure whether deferred taxes impact EVA. The study is conducted within a quantitative research paradigm. Secondary data analysis was carried out on JSE-listed food producers over a seven-year period, from 2004 to 2010. The unadjusted EVA was compared to the adjusted EVA measure to determine the before and after effects of deferred taxes on EVA. The findings of the study revealed that deferred taxes either understated or overstated the value of the EVA during the period 2004–2010. In addition, the results from the regression analysis revealed an overall significance for all deferred tax predictors. The results from the study showed that deferred tax had a significant impact on the value of EVA. Therefore, the study recommends that companies implement the deferred tax adjustment on EVA.
Highlights
During recent years, there has been an increasing emphasis on the concept of value creation
This paper investigates the impact of the deferred tax adjustment on Economic Value Added (EVA) for the Johannesburg An experimental design was chosen to study caus
The aim of this study was to determine the impact of the deferred tax adjustment on EVA for JSE-listed food producers in South Africa
Summary
There has been an increasing emphasis on the concept of value creation. Many corporations around the world are focusing on making decisions that create value for the company and for the shareholder. Shareholders are considered as one of the most important stakeholders in a company, as the investment in shares is a primary source of capital. It is, essential for managers to act in the best interests of shareholders by making decisions that will benefit the shareholder, and, create shareholder value (Collier, 2012). Sharma and Kumar (2010) agree that companies are focusing more on maximizing shareholder value The primary goal of management is to increase shareholder wealth by aligning the interests of management with that of shareholders (Lovata & Costigan, 2002). Sharma and Kumar (2010) agree that companies are focusing more on maximizing shareholder value
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