Economic Value‐Added: A Review of the Theoretical and Empirical Literature

Worthington, Andrew C.; West, Tracey

doi:10.1108/eb060736

Cited by 86 publications

(69 citation statements)

References 30 publications

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“…Bank's performance measure can be classified into traditional, economic and market-based [2]. For example Stern and Stewart developed a model called Economic Value Added (EVA) which takes into account the opportunity cost for stockholders to hold equity in a bank, measuring whether a company generates an economic rate of return higher than the cost of invested capital in order to increase the market value of the company [59]. There have been a large number of empirical studies on bank performance around the world especially commercial banks but, very little on bank performance has been done in Nigeria.…”

Section: Bank Performancementioning

confidence: 99%

Liquidity Management and Performance of Deposit Money Banks in Nigeria (1986 – 2011): An Investigation

Edem¹

2017

IJEFM

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Liquidity and bank performance are key factors in determining the survival, growth, sustainability and performance of a banking system. Mistakes in liquidity planning and implementation can affect banking operations and might exhibit long term effect on the economy. The main aim of this study is to find empirical evidence of the impact of liquidity management on the performance of deposit money banks. 24 banks were surveyed which constitute the entire deposit money banking industry in Nigeria between 1986 and 2011. Secondary data were collected and analysed using SPSS. The study uses descriptive, correlations and inferential statistics. Bank performance in terms of profitability is measured by its return on equity. Three hypotheses are formulated and statistically tested at 5 per cent level of significance using Multiple Linear Regression Analysis. Findings from the empirical analysis show that there is a significant relationship between liquidity management and the performance of Deposit Money Banks in Nigeria. The correlation results reveal positive impacts between return on equity and liquidity management variables: liquidity and cash reserve ratios, whereas loan to deposit ratio shows negative impact. However, the key results indicate that only the banks with optimum liquidity were able to maximize returns. The study concludes that illiquidity and excess liquidity pose problem to bank management operations and recommends that bank should adopt optimum liquidity model for efficiency and effectiveness.

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Section: Bank Performancementioning

confidence: 99%

Liquidity Management and Performance of Deposit Money Banks in Nigeria (1986 – 2011): An Investigation

Edem¹

2017

IJEFM

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“…After conducting a study on 112 articles on EVA Sharma & Kumar (2010) concluded that it is significantly necessary to conduct research on EVA in order to signify greater empirical certainty of EVA as performance measurement tool as there is mixed evidences on the superiority of the concept. [21] proposed the same. Worthington & West argued that there is an obvious requirement to examine the usefulness of EVA over traditional measures over a longer period of time frame which would allow greater empirical certainty on EVA's status as a corporate performance measure.…”

Section: Literature Reviewmentioning

confidence: 82%

EVA as Superior Performance Measurement Tool

Mamun¹,

Entebang²,

Mansor³

2012

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Prior to the East Asian financial crisis scholars found the necessity of a true financial performance measure in Malaysia. After more than one decade of the crisis Malaysian firms still stick with the conventional performance measures, which are criticised due to general accepted accounting principles. In this vein, this study aims to study a value based financial performance measure which can be adopted by the Malaysian firms over the conventional measures currently used. Economic Value Added (EVA) was introduced and advocated by Stern Stewart and Co. in 1982. This study intended to identify why EVA should be used as financial performance measure over the conventional measures and any added value or added advantage in EVA compare to conventional methods. EVA has been able to gain attention of the corporate giants like Coca-Cola, Sprint Corporation and Quaker Oats, as it is able to depict the true profitability of the company, however, there have been very little research conducted on EVA in Asian countries including Malaysia.

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“…Next research on the effects of explanatory power of Economic Value Added (EVA) and traditional measures of the stock return are done by Worthington & West (2001) on 110 Australian companies with the period 1992-1998 using the same method with Biddle, this study found the same results that traditional measurements are more correlated with stock returns than Economic Value Added (EVA) method. Turvey et al (2000) studies on the 17 food processing companies listed on Canadian stock exchanges about the explanatory power of Economic Value Added (EVA) on stock return, this study found that there was no relationship or explanatory power of Economic Value Added (EVA) on stock return.…”

Section: Introductionmentioning

confidence: 82%

“…Researchers using this method because the traditional measurement of accounting like financial ratios, accounting distortions that are not able to measure the added value created in a certain period. In some empirical literature also found not one single financial ratio that could explain changes in shareholder wealth (Worthington & West, 2001).…”

Section: Introductionmentioning

confidence: 99%