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The Analysis Of Residual Income – The Empirical Evidence From Slovenia

Author

Listed:
  • IGOR STUBELJ

    (University of Primorska, Faculty of Management Koper, Slovenia)

  • MATEJA JERMAN

    (University of Primorska, Faculty of Management Koper, Slovenia)

  • PRIMOŽ DOLENC

    (University of Primorska, Faculty of Management Koper, Slovenia)

Abstract

In this study we were interested in the residual income of selected Slovene companies. This parameter of company’s efficiency not only looks at return on invested funds, but also implicitly compares it with risk adjusted opportunity cost of such investment. It is therefore argued that this parameter is a better performance measure than simply accounting performance measures. Our results based on selected listed companies in Slovenia showed that residual income was far from being positive, at least in year 2006. In year 2007 the situation improved when three out of ten selected companies had a negative residual income which means that companies did not create value for their shareholders and that they did not generate enough profits to cover the appropriate cost of capital, i.e. the cost of capital that take into consideration the risk adjusted opportunity cost.

Suggested Citation

  • Igor Stubelj & Mateja Jerman & Primož Dolenc, 2009. "The Analysis Of Residual Income – The Empirical Evidence From Slovenia," JOURNAL STUDIA UNIVERSITATIS BABES-BOLYAI NEGOTIA, Babes-Bolyai University, Faculty of Business.
    • Handle: RePEc:bbn:journl:2009_1_1_stubelj
    as

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    References listed on IDEAS

    as
    1. Biddle, Gary C. & Bowen, Robert M. & Wallace, James S., 1997. "Does EVA(R) beat earnings? Evidence on associations with stock returns and firm values," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 301-336, December.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    3. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," The Journal of Business, University of Chicago Press, vol. 45(3), pages 444-455, July.
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    More about this item

    Keywords

    residual income; risk-adjusted cost of capital; performance measure;
    All these keywords.

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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