Impact of Economic Value Added (EVA) on Share Price: A Study of Indian Private Sector Banks

Abstract:     
Many Indian banks are discovering the key to their long-term growth does not lie in products and services alone but in assets that can never be replicated, that is, their unique relationship with customers, employees, suppliers and distributors, investors and the communities they serve. The objective of this study was to determine shareholders value (in terms of economic value added) of selected private sector banks during the last five years. I.e. since 2004-05 to 2009-2010. From study it was found that in year 2010, ICICI Bank has maximum NOPAT. The value of EVA was ranging from 14.48% to 91.14% during 2010. A coefficient of determination of 17.37% was highest in Induslnd bank, which indicates that about 17.37% of the variation in stock price of Indulsand (the independent variable) can be explained by the relationship to EVA of Induslnd bank (the dependent variable). Only Kotak Mahindra bank has positive correlation between Kotak Mahindra Bank EVA & Kotak Mahindra Bank share prices. Rest of banks, has negative relation between their respective EVA & share price. Hypotheses were developed to test significant impact of EVA on stock price of bank & that hypothesis was tested by using ANOVAs. For none of the bank EVA has Impact on share price, except EVA by Kotak Mahindra bank did have significant impact on stock price of Kotak Mahindra bank.

Number of Pages in PDF File: 11

Keywords: economic value added, share price, net operating profit after tax, return on invested capital, weighted average cost of capital

Accepted Paper Series