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Between Parcimony and Complexity: Comparing Performance Measures for Romanian Banking Institutions

Author

Listed:
  • Anca Munteanu

    (Academy of Economic Studies, Bucharest, Romania)

  • Petre Brezeanu

    (Academy of Economic Studies, Bucharest, Romania)

Abstract

The main objective of this study is to establish the relationship between traditional measures of performance (ROE, ROA and NIM) and EVA in order to gain some insight about the relevance of using more sophisticated performance measurements tools. Towards this end the study uses two acknowledged statistical measures: Kendall’s Tau and Spearman rank correlation Index. Using data from 12 Romanian banking institutions that report under IFRS for the period 2006-2010 the results suggest that generally EVA is highly correlated with Residual Income in the years that present positive operational profits whereas for the years with negative outcome the correlation is low. ROA and ROE are the measure that best correlates with EVA for the entire period and thus -applying Occam’s razor- could be used as a substitute for more complex shareholder earnings measures.

Suggested Citation

  • Anca Munteanu & Petre Brezeanu, 2012. "Between Parcimony and Complexity: Comparing Performance Measures for Romanian Banking Institutions," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 12(1), pages 225-232.
    • Handle: RePEc:pet:annals:v:12:y:2012:i:1:p:225-232
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    References listed on IDEAS

    as
    1. Asish K. Bhattacharya & B.V. Phani, 2005. "Economic Value Added --- A General Perspective," Finance 0504003, University Library of Munich, Germany.
    2. Fiordelisi, Franco & Marques-Ibanez, David & Molyneux, Phil, 2011. "Efficiency and risk in European banking," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1315-1326, May.
    3. 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.
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    Cited by:

    1. Lintang Dewanti & Rofikoh Rokhim, 2017. "Comparative economic value added on Southeast Asian banking industry," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 9(1), pages 74-83, April.

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    More about this item

    Keywords

    performance measures; banking sector; Economic Value Added; Residual Income;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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