EVA Approach versus BCG Approach: Evidence from Tehran Stock Exchange (TSE)

Abstract

Financial performance measurement of companies in decision-making process is one of the most important subjects in financial and economic scope regarding development and importance of market role. Economic value added (EVA), refined economic value added (REVA), market value added (MVA) as EVA-based measures, also Cash Value Added(CVA) and Cash Flow Return on Investments(CFROI) as BCG-based measures and traditional performance measures(ROI,ROE and EPS) are among the most important criteria of financial performance measurement. The most important purpose of the present research is to make clear the theoretical indices of financial performance measurement, test the relationship between these indices with intrinsic value of firm and offer necessary evidences using simple and multivariate regression and compared by rank order of adjusted R2 in order to get appropriate performance measurement and to help the Iranian capital market participants to make rational decision in investment process. Finding shows although the contributions of measures are statistically significant separately, all are not economically significant when combined into the various measures, also explains traditional accounting measures are not able outperform VBM indicators and the EVA-based measures are able to outperform the BCG -based measures.

Keywords: Cost of Capital, EVA-based measures, BCG-based measures, market value of the firm, traditional accounting performance measures

JEL Classification: G00, G32, L22, M41