Corporate Performance Measures in India: An Empirical Analysis

Posted: 6 Feb 2007 Last revised: 3 Feb 2021

See all articles by Lokanandha Reddy Irala

Lokanandha Reddy Irala

School of Management Studies, University of Hyderabad

Raghunatha Reddy

Jawaharlal Nehru University

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2007

Abstract

Traditionally periodic corporate performance is most often measured using some variant of historical accounting income (eg. Net Profit, EPS) or some measures based on the accounting income (eg. ROI/ROCE). However it had long been recognized that accounting income is not a consistent predictor of firm value creation and the traditional measures are not appropriate for evaluation of corporate performance

An appropriate measure of corporate performance on one hand should be highly correlated to share holder return and on the other hand should be able to signal the extent of periodic wealth creation. A search for such a measure had been the trigger for the rapidly growing literature on value based management (VBM). Among the set of popular VBM systems, a variant of the traditional residual income measure known as Economic Value Added (EVA) is arguably the most prominent

This paper examines whether Economic Value Added has got a better predictive power relative to the traditional accounting measures such as EPS, ROCE, RONW, FCF, Cash EPS

Analysis of 2000 companies across 8 years (6000 company years), doesn't support the claim that the EVA is the better predictor of market value compared to other accounting measures. However EVA is gaining recognition as fundamental measure of company performance despite the fact that it has been in existence for a relatively short period of time and has not been established as an empirically reliable predictor of stock performance.

Keywords: EVA, Performance Measures, Market Value

JEL Classification: G00, J33, L21, M40, M52

Suggested Citation

Irala, Lokanandha Reddy and Reddy, Raghunatha, Corporate Performance Measures in India: An Empirical Analysis (January 1, 2007). Available at SSRN: https://ssrn.com/abstract=961139

Lokanandha Reddy Irala (Contact Author)

School of Management Studies, University of Hyderabad ( email )

Prof. CR Rao Marg
Gachibowli
Hyderabad, Telangana 500046
India
8247705022 (Phone)

HOME PAGE: http://www.irala.org

Raghunatha Reddy

Jawaharlal Nehru University ( email )

Vasant Vihar
Jawaharlal Nehru University
Hyderabad, DE Delhi 500072
India

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
43
PlumX Metrics