The impact of the deferred tax adjustment on the Economic Value Added (EVA) measure
-
DOIhttp://dx.doi.org/10.21511/imfi.14(3-1).2017.07
-
Article InfoVolume 14 2017, Issue #3, pp. 227-242
- 1230 Views
-
1869 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
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.
- Keywords
-
JEL Classification (Paper profile tab)M41, G0, G30
-
References34
-
Tables6
-
Figures4
-
- Figure 1. Increases and decreases in deferred tax expenses (Rand values in 000’s)
- Figure 2. The unadjusted NOPAT and the adjusted NOPAT (Rand values in 000’s)
- Figure 3. Deferred tax liabilities (Rand values in 000’s)
- Figure 4. The unadjusted TCE and the adjusted TCE (Rand values in 000’s)
-
- Table 1. Multiple regression model of the unadjusted EVA
- Table 2. ANOVA test for overall significance
- Table 3. Coefficient test for individual significance
- Table 4. Multiple regression model of the adjusted EVA
- Table 5. ANOVA test for overall significance
- Table 6. Coefficient test for individual significance
-
- Abbott, M. L., & McKinney, J. (2013). Understanding and applying research design. United States of America: Wiley.
- Alzawahreh, A., & Khasawneh, S. (2011). Business strategies adopted by Jordanian organizations: The key to a sustained competitive advantage. Interdisciplinary Journal of Contemporary Research in Business, 3(5), 508-524.
- Anderson, A. M., Bey, R. P., & Weaver, S. C. (2005). Economic value added adjustments: much to do about nothing.
- Aubert, F. (2009). The relative informative ness of GAAP and pro forma earnings announcements in France.
- Bhattacharya, N., Black, E. L., Christensen, T. E., & Larson, C. R. (2003). Assessing the relative informative ness and permanence of pro forma earnings and GAAP operating earnings. Journal of Accounting and Economics, 36, 285-319.
- Black, D. E., & Christensen, T. E. (2009). U.S managers use of pro forma adjustments to meet strategic earnings targets. Journal of Business Finance and Accounting, 36(3,4), 297-326.
- Bryan, S. H., Lilien, S., & Martin, D. R. (2010). The financial statement effects of capitalizing operating leases. The CPA Journal, 80(8), 36-41.
- Burksaitiene, D. (2009). Measurement of value creation: Economic Value Added and Net Present Value. Economics & Management, 709-714.
- Callimaci, A., & Landry, S. (2004). Market valuation of research and development spending under Ca¬nadian GAAP. Canadian Accounting Perspectives, 3(1), 33-53.
- Cazavan-Jeny, A., & Jeanjean, T. (2006). The negative impact of R&D capitalization: A value relevance approach. European Accounting Review, 15(1), 37-61.
- Chang, C., Herbohn, K., & Tutticci, I. (2009). Market’s perception of deferred tax accruals. Accounting and Finance, 645-673.
- Collier, P. M. (2012). Accounting for managers: Interpreting accounting for decision-making. United Kingdom: John Wiley and Sons Limited.
- Damodaran, A. (2007). ROC, ROIC and ROE: Measurement and implications.
- Damodaran, A. (2009). Leases, debt and value.
- Drury, C. (2011). Cost and management accounting: An introduction. England: South-Western/Cengage Learning.
- Eames, M. J., & Sepe, J. (2005). The valuation of special items. Journal of Applied Business Research, 21(3), 61-70.
- Gallermore, J. (2012). Deferred tax assets and bank regulatory capital.
- Gee, M. A., & Mano, T. (2006). Accounting for deferred tax in Japanese banks and the consequences for their international operations. Abacus, 42(1), 1-21.
- Herbohn, K., Tutticci, I., & Khor, P. S. (2010). Changes in unrecognized deferred tax ac¬cruals from carry-forward losses: Earnings management or signaling. Journal of Business Finance and Accounting, 37(7), 763-791.
- Larrabee, D. T., & Voss, J. A. (2012). Valuation techniques: dis¬counted cash flow, earnings quality, measures of value added and real options. United States of America: Wiley.
- Latha, C. (2009). Measuring value enhancement through Economic Value Added: Evidence from literature. IUP Journal of Applied Finance, 15(9), 46-62.
- Lovata, L. M., & Costigan, M. L. (2002). Empirical analysis of adopters of economic value added. Management Accounting Research, 13(2), 215-228.
- Lynn, S., Seethamraju, C., & Seetharaman, A. (2008). Incremental value relevance of unrecognized deferred taxes: Evidence from the United Kingdom. American Accounting Association, 30(2), 107-130.
- Marques, A. (2010). Disclosure strategies among S & P 500 firms: Evidence on the disclosure of non-GAAP financial measures and financial statements in earnings press releases. British Accounting Review, 42, 119-131.
- Nichols, N. B., Gray, S. J., & Street, D. L. (2005). Pro forma adjustments to GAAP earnings: bias, materiality and SEC action. Re¬search in Accounting Regulation, 18, 29-52.
- Noor, R. M., Mastuki, N., & Aziz, Z. (2007). Earnings management and deferred tax. Malaysian Accounting Review, 6(1), 1-17.
- Phillips, J., Pincus, M., & Rego, S. O. (2002). Earnings management: New evidence based on deferred tax expense.
- Quinlan, C. (2011). Business research methods. United Kingdom: Cengage Learning.
- Ray, R. (2001). Economic Value Added: Theory, evidence, a missing link. Review of Business, 22 (1/2), 66-70.
- Sharma, A. K. & Kumar, S. (2010). Economic Value Added (EVA) - Literature review and relevant issues. International Journal of Economics and Finance, 2(2), 200-220.
- Stewart, B. (1991). The quest for value: a guide for senior managers. New York: Harper Business.
- Stewart, B. (2013). Best practice EVA: The ultimate solution for value-based corporates. United States of America: Wiley.
- Young, D. (1997). Economic value added: A primer for European managers. European Manage¬ment Journal, 15(4), 335-343.
- Zikmund, W. G., Babin, B. J., Carr, J. C., & Griffin, M. (2013). Business research methods. United States of America: Cengage Learning.
-
Integrated reporting and financial performance of South African listed banks
Reon Matemane
,
Rozane Wentzel
doi: http://dx.doi.org/10.21511/bbs.14(2).2019.11
Banks and Bank Systems Volume 14, 2019 Issue #2 pp. 128-139 Views: 2771 Downloads: 540 TO CITE АНОТАЦІЯThe recent development of integrated reporting intends to address the limitations associated with corporate reporting practices. This paper aims to examine whether a statistically significant relationship exists between integrated reporting quality and financial performance. Secondary data was used, namely the integrated reports and annual financial statements of South African banks listed on the Johannesburg Stock Exchange (JSE) for 2010–2014. For the period 2005–2009, only the financial statements were used, since integrated reporting was not yet mandatory. The research design was longitudinal and it combined qualitative and quantitative methods. Descriptive statistics and Feasible Generalized Least Square (FGLS) were used to explore the relationships between financial performance and integrated reporting quality. The results indicate that there is a positive relationship between integrated reporting quality (IRQ) and earnings per share (EPS). However, there is no significant relationship between IRQ and Tobin’s q (Q-Ratio), IRQ and return on equity (ROE), IRQ and return on assets (ROA) as well as IRQ and economic value added (EVA). Moreover, there are no significant differences on the financial performance of the listed banks before and after the introduction of integrated reporting.
-
Corporate social responsibility policies and value creation: does corporate governance and profitability mediate that relationship?
Josua Tarigan ,
Saarce Elsye Hatane ,
Linneke Stacia ,
Deborah Christine Widjaja
doi: http://dx.doi.org/10.21511/imfi.16(2).2019.23
Investment Management and Financial Innovations Volume 16, 2019 Issue #2 pp. 270-280 Views: 1366 Downloads: 229 TO CITE АНОТАЦІЯWith a purpose to give a deep understanding relating to the manifestation of social responsibilities practices among Indonesian companies, this paper reflects the relationship of corporate social responsibility (CSR), corporate profitability (CP), value creation (VC) and good corporate governance (GCG). Kinder, Lydenberg, and Domini’s (KLD) measurement approach is used in this study to measure the social responsibility practices, as this gives cross-border analysis of social responsibility. Corporate profitability captures return on assets, which is accounting-based measurement, whereas value creation explains the economic value added, which is shareholder-based measurement. Structural Equation Model (SEM) analysis is conducted for Indonesian listed companies, which appeared in Corporate Governance Perception Index (CGPI). The empirical result suggests that CSR serves as a tool in assisting shareholders value and performance. Accordingly, firms should incorporate CSR practices to enhance its strategic investment and sustain a strong relationship with its stakeholders. Subsequently, management should also take concern of having good corporate governance in order to improve company’s performance by supervising and monitoring of the company’s operation, ensure the fulfillment to the stakeholder’s interest. This paper presents fresh insights into applications of corporate social responsibility principles and corporate governance in Indonesian context that has not received systematic attention and consideration in the literature.
-
The impact of the share buyback process on financial performance: An economic and accounting perspective. Evidence from Egypt
Hossam Hassan Mahmoud Al Sharawi
doi: http://dx.doi.org/10.21511/imfi.19(1).2022.16
Investment Management and Financial Innovations Volume 19, 2022 Issue #1 pp. 210-224 Views: 1198 Downloads: 1597 TO CITE АНОТАЦІЯThis study aims to investigate the impact of the share buyback process and its motives on financial performance from an accounting and economic perspective. The study sample consisted of 66 firms listed on the Egyptian Stock Exchange from 2009 to 2020 and employed the OLS regression analysis. The results show a positive effect of share buybacks on financial performance, measured by the added economic value (EVA) and the return on equity (ROE). In contrast, the results show an insignificant effect of share buybacks on the return on assets (ROA). The study found that management’s motives to buy back shares affect a company’s financial performance. The study also found that management’s motive to achieve a cash surplus improves the company’s financial performance. The study also found that the company’s management motive to increase earnings per share is one of the most important motives for the company to buy back shares, which also improves the company’s financial performance. The study also showed that the economic value added (EVA) is one of the most important measures of financial performance, in which the repurchase of shares had the most significant impact in improving it over the return on assets or the return on equity. However, the study did not find evidence that the firms repurchase of shares out of increased financial leverage affects the financial performance. Moreover, the study found that increasing earnings per share is the most crucial motive for sharing buybacks in the Egyptian market.
Acknowledgments
I thank Jeddah International College for funding this research and continuous support from the Dean, Dr. Tariq Hamdi, and the general manager, Mr. Yazid Al Tunisi.
I thank Professor Dr. Mohamed Tahoun, Professor of Financial Accounting at Alexandria University, for reviewing this research before sending it to the journal.
