Economic Value Added: Relevance and Implications for Indian Corporates

29 Pages Posted: 23 Aug 2014

See all articles by Reeta Bharat Shah

Reeta Bharat Shah

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM)

Arunima Haldar

S.P. Jain Institute of Management and Research

S.V.D. Nageswara Rao

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM)

Date Written: August 22, 2014

Abstract

This study examines the outperformance of Economic Value Added (EVA) on traditional performance measures in explaining the contemporaneous Market Value Added (MVA).We also aim to test the best predictor of MVA of Indian companies among the value based measure and traditional performance measure. The study estimated the model using panel data regression for eleven annual observations from 2003-13 for 448 large listed Indian companies.

We found that there exists a significant positive relationship between EVA and MVA. EVA also provides additional information to investors and can be adapted by corporates as a philosophy for encouraging and educating employees. Thus managers can utilize the information provided by EVA to distinguish among value creating and value destructing activities.

Keywords: Economic Value Added, Market Value Added, Residual Income, Relative Information Content, Incremental Information Content, Panel Data Analysis, India

JEL Classification: G3, G32

Suggested Citation

Shah, Reeta Bharat and Haldar, Arunima and Nageswara Rao, S. V. D., Economic Value Added: Relevance and Implications for Indian Corporates (August 22, 2014). Available at SSRN: https://ssrn.com/abstract=2485473 or http://dx.doi.org/10.2139/ssrn.2485473

Reeta Bharat Shah (Contact Author)

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM) ( email )

Powai
Mumbai, Maharashtra 400076
India

Arunima Haldar

S.P. Jain Institute of Management and Research ( email )

Munshi Nagar, Dadabhai Road
Andheri West
Mumbai, Maharashtra 119579
India

S. V. D. Nageswara Rao

Indian Institute of Technology (IIT), Bombay - Shailesh J. Mehta School of Management (SJM) ( email )

Powai
Mumbai 400076
India
91-22-25767789 (Phone)
91-22-25722872 (Fax)

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