Value-based Performance Measures Research Articles

Disclosure of value-based performance measures: evidence from German listed firms

We examine the determinants of the disclosure of value-based (VB) performance measures in Germany. We argue that firms are more likely to disclose VB performance measures when information asymmetry is greater, as greater information asymmetry means firms have a greater need to credibly signal a shareholder value orientation. Using a hand-collected dataset of German listed firms covering 1,528 firm-years from 2004 to 2011, we demonstrate that firms are more likely to disclose a VB performance measure if the free float is larger than the blocking minority and also, when firms are large, if they have high foreign sales to total sales ratios and are not cross-listed internationally. Our results indicate that German firms use VB performance measures to improve investor communication and to substantiate their shareholder value orientation. Our results should be interpreted against a background of increased shareholder value orientation and sophisticated cost accounting in German firms.

The Attribution Matrix and the joint use of Finite Change Sensitivity Index and Residual Income for value-based performance measurement

We present a model of performance measurement and attribution for delegated investments. We introduce an innovative two-dimensional approach that, on one hand, detects the (manager and client) decision effects, measuring the impact on the overall investment performance of the choices made by manager and client in a given period and, on the other hand, detects the (manager and client) period effects, measuring the impact on the period investment performance generated by the entire set of decisions made by manager and client. To accomplish the task, we employ two techniques of analysis and a three-step procedure: we first use the Finite Change Sensitivity Index (FCSI) for measuring the decision effects (step 1); then, we use the Residual Income (RI) approach for measuring the period effects (step 2); finally, we combine the two attribution dimensions into an Attribution Matrix (AM) (step 3) which contains the attribution values. An attribution value provides the amount of value added generated in a given period by the decisions made by the manager or by the investor in (the same or) another period. We apply the AM to an Italian fund, “Anima Italia A”, between 2013 and 2020.

Financial determinants of value based performance of construction firms in India

PurposeThe purpose of the study is to examine the value-based performance of firms in construction sector in India using Tobin's Q and Market Capitalization (MCAP) and then determine their significant financial drivers.Design/methodology/approachThe study is based on data from 87 firms engaged in infrastructure, real estate, industrial construction and allied areas in India over a study period of 10 years. Three distinct forms of panel regression models have been developed using Tobin's Q and MCAP as dependent variables. The models developed are using Baltagi's (1981) Error Component 2SLS, Varadharajan-Krishnakumar's (1987) Generalized 2SLS and Arellano – Bower/Blundell – Bond's (1991) dynamic panel.FindingsThe study found that MCAP is a better suited value-based performance measure for construction sector firms in India. The study further reports that the age of the firm, profit after tax, investment in research and development, dividends, leverage and net fixed asset are significant positive drivers, whereas cash flow is a significant negative driver.Research limitations/implicationsThe study is limited to a geographic location; therefore, the findings of this study cannot be generalized.Practical implicationsAs MCAP is a better suited value-based performance measure of a firm in the construction sector, managers should focus on improving profitability, higher research and development activities, higher dividends and higher expenditures on net fixed assets for improvement.Originality/valueThis is an original attempt to examine the value-based performance of firms in the construction sector in India using Tobin's Q and MCAP.

Value-based management control systems and the dynamics of working capital: Empirical evidence

We examine the relationship between the use of value-based key performance indicators in a firm’s management control system and the dynamics of working capital (WC). We hypothesize that firms with value-based management control systems (VBMCS) manage WC more cautiously, in particular regarding excessive WC. Theoretically, we link this to the argument that value-based performance measures explicitly account for the economic costs of WC by considering the opportunity cost of capital. We empirically confirm our hypothesis by analyzing an extensive hand-collected data set of listed non-financial German firms between 2002 and 2014. We document that firms with VBMCS operate at lower levels of WC and, while seemingly less willing to settle deficient WC, reduce excessive WC more quickly. The latter does not seem to produce overinvestment activities, suggesting that VBMCS are particularly valuable in firms operating in high WC environments. Consistent with this notion, we find that firms operating in high-WC industries benefit more from the adoption of a VBMCS when we examine the link between firm value and the adoption of a VBMCS. Our study adds to the understanding of the influence of performance measurement within a firm’s management control system on firm behavior.

Economic Value Added (EVA) And Market Value Added (MVA) Towards Value Creation

The well-known value-based performance measures are Economic Value Added (EVA) and Market Value Added (MVA). EVA and MVA can help managers and shareholders to measure company’s performance in order to create wealth. The main objective of this study is to examine the relationship between EVA and MVA in creating shareholders ‘value. This study has analyzed the performance of 476 public listed companies in Bursa Malaysia. The companies represent 8 sectors and covers data for 10 years period (2007-2016). The findings seem to show a significant relationship between EVA and MVA for Malaysian firms. However, Malaysian firms indeed need some reliable measures that could evaluate their performance thoughtfully and assist investors to make right investment decisions and capital allocation.

Value-based Performance Measurement with the Attribution Matrix and the Finite Change Sensitivity Index

We present a model of performance measurement and attribution for delegated investments that summarizes the manager effect and the client effect on value creation. In particular, we introduce an innovative two-dimensional approach that, on one hand, detects the (manager and client) decision effects, measuring the impact of manager/investor choices on the overall investment performance and, on the other hand, detects the (manager and client) period effects, measuring the impact of all the (manager and client) decisions on the investment performance in a given assessment interval. As for the decision effects, the value added of an active investment portfolio is broken down in terms of the value generated by the decisions made by the manager (manager decision effect) and the value generated by the client/investor (client decision effect). As for the period effects, we quantify the impact of all the decisions made in the assessment interval on the value creation generated in a single period by the manager (manager period effect) and the client (client period effect), so that the sum of the periods' attribution values is the investment's value added. In order to accomplish the task, we employ the Finite Change Sensitivity Index (FCSI), which enables one to quantify the impact of the most influential decisions made by manager and investor, and a truncation approach which is equivalent to the well-known residual-income approach. We then combine the two attribution dimensions into an Attribution Matrix (AM). Each element of the AM provides the amount of value added generated in a given period by the decisions made by the manager or by the investor in (the same or) another period.

Operating Risk (Cost-Volume-Profit) and Economic Value Added (EVA®)

Today, it is unquestionable the importance that organizational management is supported by indicators. Also, knowledge of value creation and operating risk are information that differentiates this management support. This study aimed to verify the relationship between the value creation generated by companies included in the sample and the indicators used in operating risk (cost-volume-profit analysis). In the literature review the concept of value creation and the indicators usually used to measure operating risk, break-even point, margin of safety, and degree of operating leverage, were presented and characterized, as well as the Economic Value Added (EVA®), which was the value-based performance measure used in the study. The sample consists of 27 non-financial companies listed in Euronext Lisbon and the period analyzed was the one between 2014 and 2018. The data were obtained through the consolidated annual accounts of the sample companies, and its analysis was performed using the multivariate statistical analysis technique, linear regression. The results showed that the estimated multiple linear regression model allowed, with a very reasonable quality, to estimate the impact that the break-even point and the margin of safety variables have on the variation of the value of EVA®. This study gives significant information showing how operating risk indicators affect value creation, which is considered one the main objectives of companies.

Value Creation: EVA® Value Drivers - The Case of Euronext Lisbon

Value-based management has gained prominence in both business and academia, supported by the notion that It is no longer sufficient for a company to generate profit, it is also required that the profit be higher than the cost of the total capital invested in the company. To increase value creation, managers need to understand which are its relevant determinants (value drivers). Therefore, this study aims to identify the main value creation drivers measured by EVA® (economic value added), one of the value-based performance measures more referenced in financial literature. A sample of non-financial listed companies on Euronext Lisbon, from 2011 till 2016, is analyzed. The data was collected from the companies’ annual consolidated financial reports. The data was analyzed using tree statistical analysis techniques, binary logistic regression, Pearson correlation coefficient, and t-test for independent groups, with SPSS (Statistical package for social sciences). The results show that the variables more relevant to value creation are the operating profit margin ratio, invested capital turnover, and the cost of equity rate. This study provides valuable information that assists managers in their decision-making, allowing to maximize value creation, through the identification of the main value drivers, and it also contributes to the dissemination on the subject of value creation.

Measurement of Financial Performance of a Commercial Bank from Varied Perspectives: A Case Study of Islami Bank Bangladesh Limited

Purpose: The study aims to measure the financial performance of Islami Bank Bangladesh Limited (IBBL) from three different perspectives, such as the bank management perspective, market perspective, and shareholder perspective. Design/Methodology/Approach: A range of financial ratios/indicators are used, include activity ratios, short-term solvency ratios, asset quality ratios, and management capability ratios, to illustrate the performance of the bank in several operational areas. Subsequently, accounting return-based, market-based, and value-based performance measures are used to assess the financial performance of the bank. All data are collected from the publicly available annual reports of the bank over the period 2012-2017. Findings: The study finds that the bank has not faced liquidity problem and it has enhanced its efficiency throughout the study period. However, it has experienced poor management capability in the collection of deposits. Overall, the study finds that the financial performance of the bank from all perspectives is satisfactory with a little variation throughout the study period. Research Limitations: The results, however, are subject to several limitations, such as it uses short-term performance measures and fails to assess the causal relationship between financial performance and other financial factors. Originality/Value: Unlike prior studies, the study assesses the financial performance of IBBL using market-based and value-based performance measures along with accounting return-based performance measures. The outcomes of the study are important for different stakeholders of the bank, particularly employees, depositors, and shareholders. The current bank management also requires the same outcomes, as they require improving the management capability area to achieve its vision.

Relationship among Market Value Added, Cash Value Added, and Corporate Governance: A Case of Taiwan during 2011–2012

Abstract Traditional accounting-based performance measurement systems often fail to account for changes in firms’ economic substances. Scholars have argued that market value added and cash value added methods are better value-based performance measurement systems that accurately reflect economic substance. This article examines the relationship among market value added, cash value added, and corporate governance for Taiwanese-listed firms. The results show cash value added to have a positive relationship to the market value added. The corporate governance variables have a positive or negative moderation effect on the relationship between cash value added and market value added systems. The moderation effect of the corporate governance variables on the market value added differs from cash value added.

The shareholder value effects of using value-based performance measures: Evidence from acquisitions and divestments

Value-based (VB) management is an approach that directs corporate actions toward the objective of creating shareholder value. However, previous studies on the performance and shareholder value effects of VB performance measures have yielded inconsistent evidence. This inconsistency is at least partially attributable to the failure of corresponding studies to investigate the effect of VB measures on specific decisions that affect performance. This paper focuses on mergers and acquisitions (M&As) as important managerial decisions to analyze the performance effects of VB measures by comparing the users and non-users of such measures. Based on a sample of 235 acquisition and divestment announcements of listed German firms between 2003 and 2012, we provide evidence that market reactions to acquisition announcements are more positive for firms that have implemented VB metrics. Conversely, the use of VB measures is not significantly associated with market reactions to divestments. We also investigate firm performance in accounting measured over a long term but find no conclusive differences between users and non-users of VB measures for either acquisitions or divestments.

Shareholder Value Effects of the Use of Value-Based Performance Measures: Evidence from Acquisitions and Divestments

Value-based (VB) management is an approach to align the interests of managers and shareholders and thereby increase shareholder value. Prior studies on the performance and shareholder value effects of VB performance measures, however, yield inconsistent evidence. This can partly be attributed to the problem of studying the impact of VB measures on specific decisions. This paper focuses on mergers and acquisitions (M&As), which represent a managerial decision where the interests of managers and shareholder can diverge, and analyzes the performance effects of users of VB measures compared to non-users. Based on a sample of 235 acquisition and divestment announcements of listed German firms between 2003 and 2012, we provide evidence that the use of VB measures is positively associated with market reactions to acquisition announcements, indicating that the use of VB measures mitigates agency costs and improves managerial decision making. Contrarily, the use of VB measures is not significantly associated with market reactions for divestments. This is in line with our theory that divestments contain fewer conflicts between managers and shareholders.

Shareholder Value Creation: An Empirical Analysis of Indian Banking Sector

This study investigates the importance of economic value added for the shareholders’ value maximization. Economic value added (EVA) is a value based performance measurement tool that helps to settle down the management decision regarding creation of shareholders value. Very few literatures are found regarding creation of shareholder values in banks. Sample of 40 Indian commercial listed Banks and panel data are used for the period of 2001 to 2015, the empirical findings for Public limited banks and overall Indian banks revealed that there is a positive and significant relationship between shareholder’s value maximization and EVA but in case of Private limited banks, DPS was found to have significant relationship with shareholder value. The Higher the value of EVA, higher shareholders value .The finding shows significant support for EVA and DPS, but it was found that EVA is not efficiently used for Analysis and decision making regarding creation of value. Thus it is suggested to focus on criteria of EVA for analyzing shareholder’s value of banks.

Pengaruh Kinerja Berbasis Penciptaan Nilai Dan Variabel Makroekonomi Terhadap Return Saham Industri Pakan Ternak

The creation of value-based performance measurement can be an alternative in measuring the company's financial performance. Results can be used as indicators of assessments by investors, and these indicators can influence the stock returns. Besides, macroeconomic variables also affect stock returns. This study aimed to analyze the financial performance of companies in the process of creation of value-added with EVA, MVA, and Tobin's Q approach. Impacts of these performance measurements and macroeconomic variables (exchange rates, interest rates, and inflation) on stock returns of the subsector animal feed industry were studied. Descriptive analysis was applied in analyzing the company's financial performance. The impacts of the company financial performance and macroeconomic variables were assessed by using panel data regression analysis. The results related to the company's performance showed that 1) EVA performance dominantly obtained a positive EVA value; 2) MVA performance predominantly produced a positive MVA value in 3 companies and a negative MVA value in the other company; 3) Tobin’s Q performance predominantly generated a value of Q>1 in 2 companies and a value of Q<1 in the other 2 companies. The results of the panel data regression analysis concluded the independent variables influencing the stock return were the performance variables while the macroeconomic variables had no effects on stock return. Keywords: macroeconomic variables, panel data regression, stock return, subsector of animal feed, value-based performance

SCP-relevance and class-effect in performance – A comparative analysis of restaurants and petroleum firms

The importance of industry-specific factors for a firm's performance has often attracted the attention of researchers, managers, and investment analysts. This research uses random-effect variance component analysis to examine the relevance of structure-conduct-performance (SCP) paradigm in the context of restaurant and petroleum/natural gas firms. The study further investigates class-effect in firm performance by analyzing whether the relative importance of industry-and-firm-level effects varies across different performance groups. Results suggest a direct relevance of the SCP paradigm and industry-specific factors for firm performance, and a distinct dominance of industry-effect over firm-effect regardless of the choice of accounting or value based performance measures. Results further reveal varying roles of industry and firm-level factors (corporate or strategic) across middle-of-the road and non-average (exceptional) performance groups. As such the importance of SCP paradigm and the strategic role of both industry-and-firm effect factors for value creation in US based restaurant firms is better understood.

The impact of performance measures, leverage and efficiency on market value added: Evidence from Iran

The purpose of this paper is to investigate economic value added (EVA), as a performance measurement model, as compared to six traditional accounting performance measures vis-à-vis the market value of firms listed on Tehran Stock Exchange (TSE). The paper also explores the effect of the degree of operating leverage, financial leverage, and efficiency on market value added.The paper uses a sample of 450 firm-year observations from the Iranian market and applies pooled ordinary least square and panel data regression. The results indicate that EVA has no superiority over other performance measures, and that return on sales and return on assets are more powerful than EVA in explaining firm market value. Due to EVA's lack of correlation with market value, investors cannot use it as an internal value creation measure along with the traditional performance measures. This paper is one of the first studies on the relevance of traditional accounting and value-based performance measures in explaining TSE market values. The results extend EVA's role in explaining market values, and address its effect on investors’ decisions in a continental Asian market with characteristics similar to that of Iran.

Relationship between EVA (Economic Value Added) and Share Prices of Select Companies in BSE-SENSEX - An Empirical Study

In todays competitive world, corporate companies all around the world are trying to maximize the wealth of their shareholders in order to gain market value as well as satisfy their stakeholders. With the gaining popularity of value based performance measures like Economic Value Added (EVA), Total Shareholder Return (TSR), Cash Value Added (CVA) etc., many corporate companies in India have started assessing their value in terms of these measures. This paper investigates the relationship between EVA and share prices of select companies in BSE-SENSEX for a period of six years from 2008 to 2013. The study focuses on the explanatory power of EVA with respect to share prices of the selected companies. In turn, the performance of the selected companies belonging to different sectors in BSE-SENSEX was analyzed using EVA. The volatile nature of the capital markets characterized by various speculative activities have a greater influence on share prices, eventually undermining the impact of performance metrics on them. Thus, the findings of the study enumerates that EVA does not have a considerable explanatory power on share prices.

A novel membership value based performance measure

Various models which are based on fuzzy systems have been successfully used in many application areas including but not limited to forecasting, optimization, clustering, and modeling. An important issue is to evaluate the performance of these models. In general, a performance measure is calculated based on the difference between the defuzzified output values and corresponding desired values. Although fuzzy inference is performed over fuzzy sets or numbers, performance measure is calculated over numerical values in the literature. Thus, the membership values are ignored. We suggest that a performance measure which takes membership values into account would be a better criterion. In this study, a novel membership value based performance measure which takes membership values into consideration is proposed to evaluate models based on fuzzy systems.

Comparing Traditional and Economic Performance Measures for Creating Shareholder’s Value: a Perspective from Malaysia

This study investigates the importance of economic value added for the shareholders wealth maximization. Economic value added (EVA) is a value based performance measurement tool that inclines the agency conflict issues between managers and shareholders. Using a sample of 28 construction public listed companies in main board of Bursa Malaysia and using panel data with fixed effects during the period of 2003 to 2012, the findings of the study revealed that there is a positive and significant relationship between EVA and shareholder’s wealth maximization. The more the managers produce EVA, the more shareholders’ wealth maximization will be created. The finding shows significant support for EVA, but EVA was not reported by the companies and is not been used by investors for their investment decisions. Thus it is recommended for the managers to focus more attention to the criteria of EVA in evaluating shareholder’s value.

Outpatient implementation of a patient self-reported symptom system in an integrated health system.

172 Background: To date, process-related outcomes dominate the landscape of the measurement of quality of oncologic care. Use of patient-reported outcomes has the potential to enhance value-based performance measurement. We performed a pilot study of integrating patient-reported data (PRD), into the daily work-flow of outpatient oncology clinics in an integrated health system, Geisinger Health System (GHS). Methods: All patients in the pilot were asked their pain scores by nurses according to existing procedures. In addition, the MD Anderson Symptom Inventory (MDASI) questionnaire was given to patients via touch screens in exam rooms. Four oncologists participated in the study at two sites. The study was reviewed by the GHS IRB and was granted exemption status. Results: 63 patients successfully used the touch screen monitors to complete the MDASI with minimal impact to clinic flow. Compared to the existing EHR-prompted nursing-collected pain score method, the PRD/MDASI method identified an additional 31% of patients with severe pain who were previously identified as having “no pain” (Table). 75% of patients identified as having “moderate pain” by the current method report “severe pain” by the PRD method. Conclusions: This pilot study demonstrates that the collection of PRD can be integrated into routine oncological clinic workflows with minimal interference with clinical flow. The study also shows that the collection of PRD may be superior to clinician screening at the time of the encounter alone. GHS will integrate PRD fully into its EHR in August 2014. GHS is developing evidence-based, standardized symptom management protocols and expanding the use of PRD in clinical care. [Table: see text]