Eva Versus Traditional Accounting Measures of Performance as Drivers of Shareholder Value - A Comparative Analysis
Meditari, Vol. 13, No. 2, pp. 1-16, 2005
30 Pages Posted: 12 Aug 2010
Date Written: November 30, 2005
Various researchers and practitioners, notably Stern Stewart Consulting Company andAssociates, have claimed economic value added (EVA) to be superior to traditional accounting measures in driving shareholder value. Other researchers have refuted these claims by supplying data in support of the traditional accounting indicators like earnings per share EPS), dividends per share (DPS), return on assets (ROA) and return on equity (ROE). This study endeavored to analyse the results of companies listed on the JSE Securities Exchange South Africa. Market value added (MVA) was used as a proxy for shareholder value. The findings do not support the purported superiority of EVA and in fact found stronger relationships between MVA and cash flow from operations. The study also found very little correlation between MVA and EPS and MVA and DPS, concluding that the credibility of share valuations based on earnings or dividends should be questioned seriously.
Keywords: Economic Value Added (EVA) Market value added (MVA)
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