Market Value Added Research Articles

The study and analysis of value creating criteria of performance assessment in identification of different levels of financial health: Evidence from Iran

The present research aims at studying the significant differences of the performance assessment value creation in different levels of financial health of companies. Companies in this research have been divided into three groups of healthy, intermediate and distressed. The Economic Value Added (EVA), Market value Added (MVA) and Cash Value Added (CVA) differences of these three levels have been analyzed. From the 37 industrial entities and 224 Iranian companies, 84 companies have been selected through Cochran formula and they have been divided into 16 healthy, 45 intermediate and 19 distressed companies. The Excel software and SPSS software was used to test the hypotheses and Kruskal-Wallis statistical method was applied to compare the value added classified ratios at the level of 5% error. Research finding shows the significant statistical differences among the companies at different levels of financial health using MVA and EVA criteria, but there is no significant different in CVA of the above mentioned companies.

The study and analysis of value creating criteria of performance assessment in identification of different levels of financial health: Evidence from Iran

The present research aims at studying the significant differences of the performance assessment value creation in different levels of financial health of companies. Companies in this research have been divided into three groups of healthy, intermediate and distressed. The Economic Value Added (EVA), Market value Added (MVA) and Cash Value Added (CVA) differences of these three levels have been analyzed. From the 37 industrial entities and 224 Iranian companies, 84 companies have been selected through Cochran formula and they have been divided into 16 healthy, 45 intermediate and 19 distressed companies. The Excel software and SPSS software was used to test the hypotheses and Kruskal-Wallis statistical method was applied to compare the value added classified ratios at the level of 5% error. Research finding shows the significant statistical differences among the companies at different levels of financial health using MVA and EVA criteria, but there is no significant different in CVA of the above mentioned companies.

THE PROBLEM OF MEASURING THE EFFECTIVENESS OF COMPANY

The purpose of this article is to trace the measures of performance of company. The efficiency is a fundamental economic categories. In order to determine the efficiency, there is its measurement. Literature presents different methods of assessing efficiency. These methods may be quantitative, value, or mixed. Taking into account only the financial measures of effectiveness, they can be ex post and ex ante. At present, both theory and practice, indicate market value added (MVA) as a more and more popular measure of the effectiveness of the company. Its calculation is based on estimates of economic value added EVA. Indeed, this method combines the advantages of measurement of ex ante and ex post. The calculation of EVA is based on the historical events. The calculation of MVA is founded on estimating the future income measured by economic value added EVA, having long-term forecasting.

ECONOMIC VALUE ADDED (EVA) dan MARKET VALUE ADDED (MVA) SEBAGAI ALAT UKUR KINERJA PERUSAHAAN

Company performance is a measure that describes the financial condition of a company. The measurement of financial performance is based on the data gathered from financial reports made by the company. One of the popular measure for financial performance is financial ratios. However, financial ratios are only focused on accounting profit and do not include capital cost, so the resulting information cannot give adequate insight on the expected return from the investments made by the investors. In order to provide a solution for this challenge, a new concept has been proposed, that is economic value added (EVA) and market value added (MVA). EVA is a measure of added value generated by a company by reducing cost of capital that will indicated whether the rate of return is higher than the cost of capital expended for financing the investment. While MVA is a cumulative outcome of company performance which results from various investment which has been committed or is expected to be made. Hence, the success in terms of MVA is the success in maximizing the wealth of shareholders by allocating proper resources.EVA is calculated by subtracting after-tax net operating income from weighted average cost of capital (WACC). A positive EVA means that the company gains a greater return than the cost of capital, so that the investors will gain a return from their investment, and vice versa. MVA is calculated by subtracting equity market value with equity book value. Equity market value is calculated by multiplying the number of outstanding shares with share price, while equity book value is calculated by multiplying the number of outstanding shares with the nominal value per share. A positive MVA ( 1) means that that the management has been able to improve the wealth of the company and, by the same token, the investors' wealth, and vice versa.

The Value Of The State-Owned Enterprises In Indonesia: A Case Study Of Privatization

This research aims to test the impact of the ownership structure toward the performance of the State-Owned Enterprises (SOEs). It examines the relationship between the performance of the SOEs and the market value. The study involves 13 SOEs listed at the Jakarta Stock Exchange. Of the 13 SOEs, 9 were selected as samples. The performance of the SOEs is measured by means of the EVA (Economic Value Added) indicator and the market value by the MVA (Market Value Added) indicator. The result of the study reveals that the ownership structure does not have an impact on the performance of the SOEs, either partially or simultaneously. To a smaller degree, the study also indicates that there is a relationship between the EVA and the MVA. The implication of this study is that the privatization of the SOEs should not fully be used to help with the state budget deficit. That is, the majority of the funds should be allocated for the purpose of developing or expanding the SOEs themselves so that they can perform optimally for the sake of society. Furthermore, the SOEs should be well-managed if they would like to obtain good responses from the market.

What Influences the Changes in REIT CEO Compensation? Evidence from Panel Data

This study examines what influences the changes in REIT CEOcompensation using the following performance measures:average three-year total returns to shareholders, market valueadded, Tobin's q, and change in funds from operations. Theimpact of managerial power on the change in compensation isalso examined. The empirical evidence indicates that firmperformance and size do not influence the change in CEO salary,while risk, tenure, title, ownership, and age have significantimpacts. Bonuses are not influenced by risk, size, or CEO power;however, they are influenced by performance. Option awards areaffected by performance and CEO power.

THE BALANCED SCORECARD AS A STRATEGIC PERFORMANCE CONTROL TOOL AND ITS LINK TO THE ECONOMIC PROFIT MEASUREMENT- EVA AND MVA: A LITERATURE REVIEW

The organizational performance measurement and control system is vital to sustain the business in all economic environments. Organization requires a control system that measures the performance strategically. This paper gathers the literature discussion of one such popular integrated strategic performance control system, the balanced scorecard approach (BSC). The discussion focuses on BSC approach on facilitating the implementation of organizational strategic and its link to the economic profit measures. Two popular economic profit measures, the Economic Value Added (EVA) and Market Value Added (MVA) are discussed in detail from various researchers point of view. The paper highlights the difference between these two measures and difference with the Return on Investment (ROI). The limitation of the economic profit measure is also highlighted in the discussion. As conclusion the link between the BSC strategic performance control tool and the economic profit measures are noted. This paper provides detailed discussions of both BSC strategic tool and economic profit measures based on literature review.

The UK Companies Act of 2006 and the Sarbanes‐Oxley Act of 2002

PurposeThe 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/approachA 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.FindingsThere 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/valueThere 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.

The Relationship between External and Internal Performance Measures of the Firm: A Reassessment by the Econometrics of Dynamic Non-Stationary Panels (La Relation Entre Les Mesures De Performance Externes Et Internes De La Firme: Un Réexamen Par L’Économétrie Des Panels Dynamiques Non Stationnaires)

This article uses the recent developments in the econometrics of non-stationary dynamic panels to reassess the relationship between external and internal performance measures of the firm. The test of Im, Pesaran and Shin (2003) and the test of Pedroni (2004) were applied on a sample of 420 U.S. firms over the period (1990-2004) to verify the existence of a long term equilibrium between the market value added (MVA) of the firm and four measures of internal performance.

Value creation and the impact of corporate real estate assets

PurposeThe purpose of this paper is to investigate the impact of corporate real estate (CRE) ownership on value creation for non‐financial French listed companies.Design/methodology/approachUsing a pool sample composed of SBF 250 companies over the period 1999‐2004, this paper investigates the association between economic value added (EVA) and market value added (MVA) as proxies for the value generated by French listed companies and the proportion of real estate in their asset portfolio.FindingsThe empirical results show that an increase in the proportion of real estate assets (over total assets) is negatively associated with EVA, but only for firms in service industries exhibiting low real estate intensity. The regression on MVA shows a negative association with the increase in the proportion of real estate for firms outside the service industries.Research limitations/implicationsRecent trends show that many large companies have sold a significant portion of their CRE assets. The underlying motives for such behaviour are yet to be examined (at least for the French context). If real estate has any influence, an association should be observable between proxies of value creation and the change in the proportion of real estate assets, owned by a company. The results suggest that sales of CRE assets may be driven by value maximizing behaviour.Practical implicationsIn order to maximize the value of their firm, managers should apparently take value creation into consideration in their decisions to invest in or dispose of real estate assets.Originality/valueThe paper suggests that in a French context, CRE disposals may generate value added in certain industries with specific CRE intensity.

Productivity Growth as The Predictor of Shareholders' Wealth Maximization: An Empirical Investigation

The economic value added (EVA), orginally developed by Stern Stewart & Company, is a relatively new financial tool that is being adopted successfully by many firms. However, evidence of EVA as a predictor of shareholders’ wealth is mixed. This paper empirically verifies the effect of productivity growth, a real missing link between EVA and a firm’s financial health, on shareholders’ wealth maximization. The study uses the firm-level data from the Indian food processing industry for the period 1993-94 to 2005-06 to measure and decompose the Malmquist productivity index into its different components, such as technological change, pure efficiency change and change in scale efficiency, by using the technique of data envelopment analysis (DEA). It further examines the linkage between different components of productivity change and market value added, an indicator of shareholders’ wealth maximization, by using fixed effect regression models. The results reveal that the negative growth in total factor productivity change is mainly due to technological regress on the one hand and increasing inefficiencies of the firms on the other hand. The scale efficiency change is found to be the only source of total factor productivity (TFP) change in the Indian food processing industry. As expected, there exists a positive relationship between the components of TFP change and the market value added (MVA). However, the technological change is found to be the only driving force of market value in the Indian food processing industry, indicating that the stock market does recognize the innovative activity undertaken by firms.

EVA, refined EVA, MVA, or traditional performance measures for the hospitality industry?

Stewart (1991) proposed economic value added (EVA) as a true measurement of a firm's performance and an executive's evaluation tool because EVA reflects only incremental values added to a firm after considering cost of capital. Kim [Kim, W.G., 2006. EVA and traditional accounting measures: which metric is a better predictor of market value of hospitality companies? Journal of Hospitality & Tourism Research 30(1), 34–39] examined EVA in the hospitality setting and concluded that EVA is not superior to other available measurements for accounting. However, this study contributes several improvements to Kim's (2006) study and compares the incremental explanatory power of six firm performance measures including EVA, refined EVA (REVA), market value added (MVA), and three traditional accounting performance measures for market adjusted returns. According to the findings, REVA and MVA are, apparently, valuable performance measures for evaluating hospitality firms.

The Effects of Cultural Differences on Knowledge Assets and U.S. MNCs' Firm Value: A Three-Valuation Approach

This study examines the effect of cultural differences (CD) between U.S. multinational companies (MNCs) and their foreign subsidiaries on the firm value of the U.S. parent company. The study uses three different valuation models: (1) Tobin's Q; (2) Weighted Cost of Capital (WACC); and (3) Market Value Added (MVA). Analysis using the Tobin's Q model found an inverse relationship between CD and firm value. In contrast, examination of firm value using the WACC and MVA models indicated a direct relationship. These findings suggest that CD has a relationship with the U.S. parent company's firm value, but leave open the question of direction. The analysis reveals that risks or rewards can result from the exchange of knowledge and other intangible assets, and points to Weighted Average Cost of Capital as the optimal model for assessing the effects of cultural distance on firm value. Damodara's (2006) results confirm this apparent lack of consensus. The author found that firm value can be both understated and overstated at the same time depending on the parameters of the different valuation models; these may be narrow or broad, producing different estimates firm value. The present study is similar to a linear programming solution in which a minimization model (Tobin's Q) and maximization model (Market Value Added) are used to formulate the optimal solution point, Weighted Average Cost of Capital (Gartner, & Matousek, 2006). It can be argued that the WACC Model is an optimal solution point, since this approach is by far the most widely used method to compute firm value (Graham & Harvey, 2001) and has a high correlation. Copeland, Koller, and Murrin (2000) applied a WACC-based model to 35 MNCs and found a 0.94 correlation between the model's estimated values and actual market values. Mc Cafferty (1999) surveyed Chief Financial Officers of MNCs and found WACC to be the most popular model among these practitioners for estimating the value of potential acquisitions. Based on these findings and the results of our own research, we deduce that WACC is the best model among the three tested, and we conclude that cultural distance enhances, rather than reducing, the firm value of U.S.-based multinational companies.

Economic value added and market value added - measures for financial performance of firms.

Accordingly with the financial theory which has suggested that every company’s final purpose is to maximize the wealth of its shareholders, two of the most popular value based measures are the Economic Value Added (EVA) and the Market Value Added (MVA). Unlike traditional profitability measures, both MVA and EVA measures take into account the cost of equity capital [1]. EVA is a performance measure developed by Stern Stewart&Co that measures the true economic profit produced by a company ant it can be calculated as net operating profit minus an appropriate charge for the opportunity cost of the capital invested in a firm [2]. As an important management tool, EVA can help managers to incorporate two basic principles of finance into their decision: maximization of the shareholders’ wealth and the company value depends on the extent to which investors expect future profits to exceed the cost of capital. Therefore, in comparison with the traditional performance measures, EVA proved to be superior from many points of view: it is a capital allocation tool inside a company, it increases revenue, it reduces the cost of capital, it is the most accurate measure of corporate performance, encourages long-term perspective for managers and employees of the firm. MVA, on the other hand, is simply the difference between the current total market value of a company and its invested capital. MVA is not a performance metric like EVA, it is a wealth metric, measuring the level of value a company has accumulated over time. MVA assesses increase in value with regard to the capital invested. As managers become more familiar with MVA and EVA and understand their potential, these measures may become more widely accepted accounting tools for assessing the financial performance of firms.

The Relationship between Economic Value Added (EVA®) and Market Value Added (MVA) With Reported Earnings: An Empirical Research Of 40 Listed Companies In Indonesia Stock Exchange For The Year 2004-2007

This study was made to examine the relationship between Economic Value Added (EVA®) and Market Value Added (MVA) with the reported earnings. Thus, the purpose is to gain better understanding in the use of EVA and MVA in relation to the reported earnings in certain purposes from different regression models. With the sample of 40 Indonesian listed companies in Indonesia Stock Exchange from year 2004 to 2007, the hypothesis testing is used to find the relationships among variables. The author use formula for calculating EVA and MVA to be use in four models of regression analysis against reported earnings. This study found evidence in the relationships between EVA and MVA with reported earnings, and the highest correlation among the models is relationship within the same year period, which can be used for evaluation purposes. Only the relationship of the EVA in the previous year and reported earnings changes is proved not significant. Still, MVA is more significant in explaining its relationship with reported earnings rather than EVA. The author concludes that in general, Indonesian listed companies still produces negative EVA. On the other hand, while the EVA and MVA are proved to have correlation with reported earnings, the result for EVA is lower than MVA. Therefore, there is still not enough evidence that EVA can be used to explain the reported earnings effectively other than MVA.

Linkage between Market Value Added (MVA) and other Financial Variables: An Analysis in Indian Automobile Industry

The present article makes an attempt to find the relevance of Stern and Stewart's claim that MVA of the firm is largely positive associated with or driven by its EVA generating capacity in the Indian context. The study also portrays the temperament of association between MVA and other selected traditional financial variables like Earnings Per Share (EPS), Return on Capital Employed (ROCE), Net Operating Profit After Tax (NOPAT) and Return on Net Worth (RONW). The regression analysis has been carried out, and the succeeding outcomes that have been arrived revealed that NOPAT and RONW are the most significant variable with MVA followed by EVA, ROCE and EPS. In almost all cases, the positive relationship through correlation model has been established between the variables under reference. Thus, revealing the influence of this tool for rummaging the financial potency of Indian corporate comprising an industry and Indian industries comprising the particular sector may be measured as the need of the hour for all such companies that have not starting reporting their financial position in terms of EVA and MVA.

The Effects of Cultural Differences on Knowledge Assets and U.S. MNCS' Firm Value

This study examined the effect of cultural differences (CD) between U.S. multinational companies (MNCs) and their foreign subsidiaries on the value of the U.S. parent companies as calculated using Tobin's Q. The findings suggested that CD had an inverse relationship with U.S. parent company firm value, and implied that cultural differences can impede knowledge transfer within the MNC. The results also revealed that: (1) risks or rewards can result from cultural distances in the transfer of knowledge assets, and (2) no conclusions can be drawn as to whether MNC value is enhanced or reduced as a consequence. Knowledge assets (intangible assets) were characterized by Forrester Research (2004) as essential determinates in an assessment of corporate value by investors and analysts. In a dissertation by this study's corresponding author, the impact to firm value of cultural differences (Hofstede, 1980a, 1980b, 1991a, 1991b & 1993) that existed between the foreign subsidiaries and U.S. parent companies was examined. The dissertation looked at the value impact of cultural differences on three different valuation models: (1) Tobin's Q (Anita, Lin, & Pantzalis, 2005); (2) Weighted Cost of Capital (WACC) (Copeland, Koller, & Murin, 2000); and (3) Market Value Added (MVA) (Pratt with Niculita, 2005) to test for consistency in the findings. Under the valuation model Tobin's Q, a discount in firm value of the U.S. parent company was found. In contrast, the WACC and MVA models improved the firm value of the U.S. parent company. These findings implied that CD can influence firm value, but no conclusions can be drawn as to whether it enhanced or reduced firm value of U.S. MNCs. The research implied that cultural differences and knowledge assets may result in risks or rewards to the firm value of U.S. MNCs. The study concluded that other variables could have had an effect on the firm value of the U.S. parent company because the methodology was multiple regression and correlation analysis.

Reit Executive Compensation, Performance, and Management Power: Evidence from Panel Data

This study focuses on REIT CEO compensation. We utilize five different definitions for CEO compensation: salary, bonus, cash compensation, total compensation, and option awards. To capture the determinants of CEO compensation, we use the following performance measures: three-year stock returns, MVA (market value added), and Tobin's q. We also examine the impact of managerial power on compensation. We utilize a panel data set to capture both the time-series and cross-sectional effects. Our panel data set captures both the time-series and cross-sectional effects. Previous work on REIT executive compensation has chiefly looked at compensation data on cross-sectional basis. We find performance and size do not influence the CEO's salary while, risk, term, title, ownership, and age have significant impacts. Contrary to previous findings and our expectations, bonuses are not influenced by risk, CEO power, or size.

Will eChannel additions increase the financial performance of the firm?—The evidence from Taiwan

The emergence of the Internet has forced firms to add eChannels to their existing channel system. Nevertheless, empirical studies failed to provide direct evidence on whether eChannel addition could enhance the financial performance of the firm. In this research, an attempt was made to fill in this literature gap from three financial measure perspectives, i.e., Event Study methodology, Economic Value Added (EVA) measure and Market Value Added (MVA) measure. Empirical data were collected from Taiwan's financial service sector. The finding revealed that eChannel addition announcement could increase a firm's accumulative abnormal returns, EVA value and MVA value. We therefore concluded that eChannel addition could help increase the financial performance of the firm.

EVA® and Stock Performance

Investors make investment decisions based on various performance measures. This study assesses whether investors should base their investment decisions on market value added (MVA), economic value added (EVA), or future growth reliance (FGR). Griffith finds that investors basing their investment decisions on MVA, EVA, or FGR would have suffered significant losses. <b>TOPICS:</b>Performance measurement, volatility measures