Predictive power of economic-based performance indicators on shareholder value: Evidence from South African listed firms
-
DOIhttp://dx.doi.org/10.21511/imfi.20(3).2023.25
-
Article InfoVolume 20 2023, Issue #3, pp. 299-310
- Cited by
- 294 Views
-
182 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Financial statements are often number intensive, and determining the importance and relevance of these numbers from the perspective of investors and equity holders is paramount. However, empirical studies concerning the correlation between several accounting and economic-based indicators with shareholder returns have yielded contradictory results. Additionally, considering the relatively limited studies on economic-based indicators such as refined economic value-added and economic value-added momentum, this study evaluated the predictive power of refined economic value added, economic value-added momentum, and economic value added (economic-based indicators), along with traditional accounting-based indicators such as return on equity and earnings per share on the shareholders' returns. The study employed fixed-effect instrumental variable regression and panel quantile regression techniques to examine 49 non-financial companies listed on the Johannesburg Stock Exchange from 2007 to 2021. Overall, the results showed that economic value added is a significant negative predictor of shareholder returns, while refined economic value-added is a positive determinant. In addition, the refined economic value-added coefficient remains positive, with the impact increasing across the conditional quantiles. This study concludes that refined economic value-added provides a superior and realistic determinant of shareholder value on the Johannesburg Stock Exchange compared to other measures.
- Keywords
-
JEL Classification (Paper profile tab)G11, G14, G30, G34
-
References56
-
Tables3
-
Figures0
-
- Table 1. Correlation matrix
- Table 2. Determinants of shareholder returns
- Table 3. Distributional drivers of shareholder returns
-
- Ahsan, A. F. M. (2012). Can ROE be used to predict portfolio performance? Economics, Management, and Financial Markets, 7(2), 132-148.
- Alam, P., & Nizamuddin, M. (2012). Performance measures of shareholders wealth: An application of economic value added. International Journal of Applied Financial Management Perspectives, 1(1), 160-167.
- Amyulianthy, R., & Ritonga, E.K. (2016). The effect of economic value added and earnings per share to stock return (panel data approach). International Journal of Business and Management Invention, 5(2), 8-15.
- Anderson, A. M. Bey, R. P., & Weaver, S. C. (2004). Economic value added adjustments: Much to do about nothing'. Paper Presented at Midwest Finance Association Conference, 18-20 March 2004. San Antonio, U.S.A.
- Anwaar, M. (2016). Impact of firms' performance on stock return (Evidence from listed companies of FTSE-100 Index, London, UK). Global Journal of Management and Business Research, 16(1), 1-10.
- Arabsalehi, M., & Mahmoodi, I. (2012). The quest for superior performance measures. International Journal of Economics and Finance, 4(2), 116-126.
- Ashraf, Y. (2018). Is REVA. a better predictor of shareholders' value? A study of Pakistan listed cement companies. International Journal of Economics, 8(2), 1-22.
- Aveh, F. K., & Vitor, D. A. (2017). Firm-specific determinants of stock prices in an emerging capital market: Evidence from Ghana Stock Exchange. Cognet Economics & Finance, 5(1), 1-12.
- Aziz, T. (2011). A new revolutionary ratio? KTH, School of Architecture and the Built Environment (A.B.E.) Real Estate and Construction Management.
- Babatunde, A. A., & Evuebie, O. C. (2017). The impact of Economic Value Added on stock return in Nigeria. Scholars Journal of Economics, Business and Management, 4(2), 89-93.
- Bacidore, J. M., Bouquist, J. A., Milbourn, T. T., & Thakor, A. V. (1997). The search for the best financial measure. Financial Analysts Journal, 53(3), 11-20.
- Badruzaman, J. (2020). The impact of earnings per share and return on equity on stock prices. Systematic Review in Pharmacy, 11(6), 1285-1289.
- Ball, R., & Brown, P. (1968). An empirical evaluation of accounting income number. Journal of Accounting Research, 6(2), 159-178.
- Baseri, M., Atefat, M., & Baseri, S. (2013). 'EVA's and REVA's relative and growing information on benefits predictions in Tehran Stock Exchange accepted companies. European Online Journal of Natural and Social Science, 2(3), 401-408.
- Chen, S. Dodd, J. L. (1996). Economic value added (EVA), I:A an empirical examination of a new corporate performance measure. Journal of Management Issues, 9(3), 318-333.
- De Villiers, J. U., Hamman, W. D., Joubert, C., & Le Roux, N. J. (2003). Earnings per share and cash flow per share as determinants of share value; Tests of significance using bootstrap with Demestz's method. Journal of Studies in Economics and Econometrics, 27(1), 95-125.
- De Wet, J. H., & Du Toit, E. (2007). Return on equity: A popular, but a flawed measure of corporate financial performance. South African Journal of Business Management, 38(1), 59-69.
- De Wet, J. H., & Hall, J. H. (2006). An analysis of strategic performance measures of companies listed on the JSE South Africa. South African Journal of Economics and Management studies, 9(1), 57-71.
- De Wet, J. H. v. H. (2004). A strategic approach in managing shareholders wealth for companies listed on the JSE Securities Exchange South Africa. Doctoral thesis. University of Pretoria.
- Driscoll, J. C, & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. Review of Economics and Statistics, 80(4), 549-560.
- Du Toit, E. (2015). Revisiting the relationship between different financial risk measures and the market return on ordinary shares in South Africa. South African Journal of Economic and Management Sciences, 18(2), 218-231.
- Ejaz, M., Tashfeen, R., Younas, K., & Naeem, A. (2018). Economic value added or earnings per share? An incremental analysis. Empirical Economic Review, 1(2), 63-90.
- El-Habashy, H. (2019). The impact of accounting conservatism on corporate performance indicators in Egypt. International Journal of Business and Management, 14(10), 1-11.
- Erasmus, P. D. (2008). Evaluating the information content of nominal and inflation-adjusted versions of the measure Economic Value Added. Meditari Accounting Research, 16(2), 69-87.
- Fayed, A. M., & Dubey, S. (2016). An empirical study of the impact of EVA Momentum momentum on the shareholders value creation as compared to traditional financial performance measures – with special reference to the UAE. International Journal of Economics and Finance, 8(5), 23-38.
- Gupta, V. K., & Sikarwar, E. (2016). Value creation of EVA and traditional accounting measures: Indian evidence. International Journal of Productivity and Performance Management, 65(4), 436-459.
- Hamidah, A. (2015). EVA, ROCE, ROE, and EPS as method of assessment of financial performance and its effect on shareholders' wealth: Evidence from bank listed at Indonesia Stock Exchange 2011–2013. International Journal of Scientific and Research Publication, 5(2), 1-7.
- Hung, N. K., Tuan, G. O., Phuong, D. T. M., Thang, Le. D., & Hien, N. A. (2019). Key factors affecting the stock prices of enterprises listed on Ho Chi Min Stock Exchange. Academy of Accounting and Financial Studies Journal, 23(6), 1-7.
- Jakub, S., Viera, B., & Eva, K. (2015). Economic value added as a measurement tool of financial performance. Procedia Economics and Finance, 26, 484-489.
- Machado, J., & Silva, J. (2019). Quantiles via moments. Journal of Econometric, 213(1), 145-173.
- Maeenuddina, R. B., Hussain, A., Hafeez, M., Khan, M., & Wahi, N. (2020). Economic value added momentum & traditional profitability measures (ROA, ROE & ROCE): A comparative study. Test Engineering and Management, 83, 13762-13774.
- Magwegwe, N. N. (2003). An empirical study into economic value added (EVA) as an indicator of share price in the South African context (Master's Thesis). University of Natal.
- Mahoney, R. (2011). EVA momentum as a performance measure in the United States lodging industry (Unpublished PhD Thesis). Iowa State University.
- Menaje, P. (2012). Impact of the selected financial variable on the share price of publicly listed firms in the Philippines. American International Journal of Contemporary Research, 2(9), 98-104.
- Nakhaei, H. N. (2016). Market value added and traditional criteria, which measure is a best predictor of stock return in Malaysian companies. Iranian Journal of Management Studies, 9(2), 433-455.
- Nakhaei, H. N., Hamid, NIN, Anuar, M. A., & Nakhaei, H. (2012). Performance evaluation using accounting variables (Net profit and Operating profit) and economic measures. International Journal of e-Education, e-Business, e-Management and e-learning, 2(161), 443-448.
- Nichols, D., & Wahlen, J. (2004). How do earnings numbers relate to stock returns? A review of classic accounting research with updated evidence. Accounting Horizons, 18(4), 263-286.
- Nugroho, M. (2018). The effect of economic value added (EVA), market value added (MVA), refined economic value added (REVA) on stock prices and return stock at manufacturing industries who listed on Indonesia Stock Exchange (BEI). Archives of Business Research, 6(12), 173-188.
- Omneya, A. K., Ashraf, S., & Eldin, B. B. (2021). Financial performance appraisal using economic value added in emerging markets: Evidence from Egyptian listed companies. Open Journal of Social Science, 9(3), 415-434.
- Panigrahi, S. K., Zainuddin, Y., & Azizan, A. (2014). Comparing traditional and economic performance measures for creating shareholder's value: Perspective from Malaysia. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(4), 280-289.
- Pourali, M. R., & Roze, Z. (2013). The relationship between market value added with refined economic value added and performance accounting criteria in the firms listed in the Tehran Stock Exchange. International Research Journal of Applied and Basic Sciences, 4(6), 1636-1645.
- Quintiliani, A. (2018). The relationship between market value added (MVA) of SMEs listed on AIM Italia and internal measure of value creation, the role of corporate strategy planning. International Journal of Financial Research, 9(1), 121-131.
- Rasool, N., Ullah, S., Hussain, M. M., & Usman, M. (2021). The role of value added and conventional accounting measure in stimulating stock market returns: A study of non-financial sector listed at Pakistan Stock Exchange. Journal of Accounting and Finance in Emerging Economies, 7(1), 217-232.
- Richter, F., & Honold, D. (2000). Das Schöne, das Unattractive und das Hässliche an EVA & Co [The beautiful, the unattractive and the ugly about EVA & Co]. Finanz Betrieb – Zeitschrift für Unternehmensfinanzierung und Finanzmanagement, 2(2), 265-274. (In German).
- Robbetze, N., De Villiers, R., & Harmse, L. (2017). The effect of earnings per share categories on share price behaviour: Some South African evidence. The Journal of Applied Business Research, 33(1), 141-152.
- Sauro, M., & Tafirei, M. (2016) EVA and stock return: are they correlated? Financial Assets and Investing, 7(2), 34-51.
- Sharma, A. K., & Kumar, S. (2010). Economic value added (EVA) – Literature review and relevant issues. International Journal of Economics and Finance, 2(5), 3-5.
- Stewart, G. B. (1991). The quest for value. A guide for senior managers. New York: Harper Business.
- Stewart, G. B. (1994). EVA: Fact and fantasy. Journal of Applied Corporate Finance, 7(2), 71-84.
- Stewart. B. (2009). EVA momentum: The one ratio that tells the whole story. Journal of Applied Corporate Finance, 2(2), 74-86.
- Sulistyanie, A., & Sumantri, M. B. (2020). The effect of return on equity (ROE), debt equity ratio (DER) and earnings per share (EPS) the share price of LQ45 indexed companies on the Indonesia Stock Exchange for the period 2015–2018. Technium, 2(7), 209-221.
- Tan, B. T., Fam, P. S., Radin Firdaus, R. B., Tan, M. L., & Gunaratne, M. S. (2021). Impact of climate change on rice yield in Malaysia: A panel data analysis. Agriculture, 11(6).
- Tawiah, V. K., & Benjamin, M. (2015). The impact of board structure on shareholders return. International Journal of Science and Research, 4(3), 2310-2315.
- Vermeulen, M. (2016). Fundamental factors influencing returns of shares on the Johannesburg Stock Exchange in South Africa. Journal of Economic and Financial Sciences, 9(2), 426-435.
- Weldon, S. G. (2013). The relationship between Economic value added and future accounting earnings: A study of South African listed companies. Paper Presented at the Southern Africa Accounting Association Biennial Conference, 26-28 June 2013. Somerset West, South Africa.
- Wirawan, D. I. (2011). Effects of EVA, EVA spread, EVA momentum and return on assets on stock return. Empirical study study in Indonesian Stock Market, Unpublished doctoral thesis, Faculty of Economics and Business University Gadjah Mada, Indonesia.