Economic value added and shareholders’ wealth creation: the portrait of a developing Asian country

Abstract

Managing and creating shareholder values have become a widely accepted corporate objective since the last decade. Of late, companies in India have started focusing on shareholders wealth creation by adopting value-based models for measuring shareholder value that helps to align managerial decision making with firm preferences. In recent years, the EVA framework is gradually replacing the ‘traditional’ measures of financial performance on account of its robustness and its immunity from ‘creative’ accounting. This study examines the value-creation strategies of selected Indian companies by analysing whether EVA better represents the market-value of these companies in comparison to conventional performance measures. In this regard, EVA and the conventional measures of corporate performance, such as, RONW, ROCE and EPS are analysed. Moreover, ANOVA, trend analysis and regression analysis are used for analysing the data. The study indicates that “there is no strong evidence to support Stern Stewart’s claim that EVA is superior to the traditional performance measures in its association with MVA”. During 2010-11, just 17 Indian companies, from a sample of 500, were providing EVA disclosures in their annual reports. © 2013 Inderscience Enterprises Ltd.