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Comparing Traditional and Economic Performance Measures for Creating Shareholder’s Value: a Perspective from Malaysia

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  • Shrikant Krupasindhu Panigrahi
  • Yuserrie Zainuddin
  • Azzlina Azizan

Abstract

This study investigates the importance of economic value added for the shareholders wealth maximization. Economic value added (EVA) is a value based performance measurement tool that inclines the agency conflict issues between managers and shareholders. Using a sample of 28 construction public listed companies in main board of Bursa Malaysia and using panel data with fixed effects during the period of 2003 to 2012, the findings of the study revealed that there is a positive and significant relationship between EVA and shareholder’s wealth maximization. The more the managers produce EVA, the more shareholders’ wealth maximization will be created. The finding shows significant support for EVA, but EVA was not reported by the companies and is not been used by investors for their investment decisions. Thus it is recommended for the managers to focus more attention to the criteria of EVA in evaluating shareholder’s value.

Suggested Citation

  • Shrikant Krupasindhu Panigrahi & Yuserrie Zainuddin & Azzlina Azizan, 2014. "Comparing Traditional and Economic Performance Measures for Creating Shareholder’s Value: a Perspective from Malaysia," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(4), pages 280-289, October.
    • Handle: RePEc:hur:ijaraf:v:4:y:2014:i:4:p:280-289
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    References listed on IDEAS

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    1. I. M. Pandey, 2005. "What Drives the Shareholder Value?," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 1(1), pages 105-120.
    2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    3. Elizabeth King, 2009. "Economic vs. Accounting Profit Rates," Springer Books, in: Transfer Pricing and Corporate Taxation, chapter 0, pages 7-10, Springer.
    4. Ashwini K. Agrawal, 2012. "Corporate Governance Objectives of Labor Union Shareholders: Evidence from Proxy Voting," The Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 187-226.
    5. Dennis G. Uyemura & Charles C. Kantor & Justin M. Pettit, 1996. "Eva® For Banks: Value Creation, Risk Management, And Profitability Measurement," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(2), pages 94-109, June.
    6. Young, David, 1997. "Economic value added: A primer for European managers," European Management Journal, Elsevier, vol. 15(4), pages 335-343, August.
    7. Elizabeth King, 2009. "Transfer Pricing and Corporate Taxation," Springer Books, Springer, number 978-0-387-78183-9, December.
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    Cited by:

    1. Mohamed Saleh Abd AL Khuja & ZainalAbidin Bin Mohamed, 2016. "Investigating the adoption of E-Business Technology by Small and Medium Enterprises," Journal of Administrative and Business Studies, Professor Dr. Usman Raja, vol. 2(2), pages 71-84.
    2. Hanan Ali Al-Awawdeh & Sa¡¯ad Abdul Kareem Al-Sakini, 2018. "The Impact of Economic Value Added, Market Value Added and Traditional Accounting Measures on Shareholders¡¯ Value: Evidence from Jordanian Commercial Banks," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(10), pages 1-40, October.
    3. Mihaela Brindusa Tudose & Valentina Diana Rusu & Silvia Avasilcai, 2021. "Performance Management for Growth: A Framework Based on EVA," JRFM, MDPI, vol. 14(3), pages 1-19, March.
    4. Sliman S. Alsoboa, 2017. "The Influence of Economic Value Added and Return on Assets on Created Shareholders Value: A Comparative Study in Jordanian Public Industrial Firms," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(4), pages 63-78, April.
    5. Muneer Mohamed Imhmed Abuazoom & Hanizun Bin Hanafi & Zul Zakiyuddin Bin Ahmad, 2017. "Influence of HRM Practices on Project Performance: Conceptual Framework," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(3), pages 47-54, March.
    6. Haruna, Dzugwahi & Apedzan Emmanuel, Kighir, 2018. "Ifrs Adoption And Shareholders' Wealth Of Deposit Money Banks In Nigeria," International Journal of Contemporary Accounting Issues-IJCAI (formerly International Journal of Accounting & Finance IJAF), The Institute of Chartered Accountants of Nigeria (ICAN), vol. 7(2), pages 16-30, December.
    7. Oji Okpusa Oke & Kola Benson Ajeigbe, 2024. "Evaluating the Relationship between Accounting Variables, Value-Based Management Variables, and Shareholder Returns: An Empirical Approach," JRFM, MDPI, vol. 17(8), pages 1-17, August.
    8. Taher Abdulsalam Ehbara & Syadiyah Abdul Shukor, 2016. "Impact of Service Quality Factors on Customer Trust in Libyan Airline Industry," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(5), pages 350-363, May.

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