EVA VS TRADITIONAL ACCOUNTING MEASURES: A PRE RECESSION CASE STUDY OF SELECTED IT COMPANIES
Journal Title: International Journal of Marketing and Technology - Year 2012, Vol 2, Issue 6
Abstract
Purpose: The purpose of the study was to explain the explanatory power of EVA for shareholders value creation. The study provides empirical evidence on the relative and incremental information content of EVA and traditional performance measures, earnings, and cash flow. The inference from this paper is that IT companies should always try to maximize shareholders value. If this is not done then their stocks will not be able to stand in the market. This analysis helps us to dig below the surface numbers to tell us more about the underlying business and whether there is a prima facie case for using EVA as one of the range of performance measurement tools. The study focuses on Pre Recession time period. Design/methodology/approach: The sample of study comprises selected IT companies traded in the main NSE stock exchange. The sample selected for the study comprised of nine IT companies listed in NSE stock exchange from the period 2003-04 to 2007-08. This sample was selected on the basic of judgmental sampling technique. Cause and effect relationship between individual traditional measures as independent variable and EVA as dependent variable was established by linear regression method. A comparison of outcomes of previous studies with ours shows that significant results depend on finding the appropriate variables (stock prices versus stock returns) and the correct dynamics linking the dependent and the explanatory variable. Value of research: Till now, various researches have been done in this area. The overriding message of this research is that Information Technology companies must always strive to maximize shareholders value without which their stock can never use fancied by the market. This research will be helpful for all the investor investing in India Capital market. This research is an attempt to establish the cause and effect and relationship between EVA and other traditional tools. The evidence of the majority of the empirical studies regarding EVA suggests that there is a positive relationship between EVA and shareholder value creation. However, when the explaining power of EVA versus traditional performance measures regarding equity market value or returns is considered, the results are mixed. Thus an attempt will be made to find that shareholders wealth of the firm is largely positively associated with or driven by its EVA generating capacity in Indian context.
Authors and Affiliations
Dr Tarika Singh and Dr Seema Mehta
Keywords
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