Academic journal article Iranian Journal of Management Studies

Market Value Added and Traditional Accounting Criteria: Which Measure Is a Best Predictor of Stock Return in Malaysian Companies

Academic journal article Iranian Journal of Management Studies

Market Value Added and Traditional Accounting Criteria: Which Measure Is a Best Predictor of Stock Return in Malaysian Companies

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

Maximization of shareholder value is the main purpose of each company. In this regard, evaluating companies' performance is vital in ensuring and achieving optimal allocation of limited resources. Large numbers of accounting performance measures have been developed. These criteria are often criticized for two reasons namely, not including the companies' capital cost and they are based on accounting information, which could be distorted by Generally Accepted Accounting Principle (GAAP). For this reason, the value based measures are presented to resolve the limitation of accounting measures (Nakhaei et al., 2013). According to, Erasmus (2008b, p.66), "Value-based (VB) financial performance measures are often advanced as improvements over measures facilitates the evaluation of value creation. Furthermore, they attempt to remove some accounting distortions resulting from the limitations of conventional accounting information."

Incremental comparisons ask whether one accounting measure provides information content beyond that provided by another, and apply when one measure is viewed as given and an assessment is desired regarding the incremental contribution of another (e.g., a supplemental disclosure). Relative comparisons ask which measure has greater information content, and apply when making mutually exclusive choices among alternatives, or when rankings by information content are desired (e.g., when comparing alternative disclosures). Questions of both incremental and relative information content arise frequently in accounting. However, few previous studies have examined questions of relative information content. Possible explanations include unfamiliarity with the relative versus incremental distinction, and the additional statistical complexity involved in testing for relative information content (Biddle et al., 1995).

MVA is an option to approximate the stockholder value creation. MVA is a contrast between market value of company and capital supplied by the investors over a period of time. MVA is connected to EVA because it is the present value of future EVA value (Baum et al., 2004). Hence, EVA is a measure of performance in a given year, while MVA is the increasing calculate of future years (Kramer & Peters, 2001). Moreover, EVA is an internal performance measure and MVA is an external performance measure (Rahnamay-Roodposhti et al., 2006).

Internationally, there are many studies directed to recognize the relationship between accounting and value based financial performance measures with stock return, but most of these studies have been managed in developed countries and very little research has been conducted on EVA in Asian countries specially in Malaysia (Sharma & Kumar, 2010). In addition, more research is needed on performance measures tools, especially on value based criteria (Al Mamun & Abu Mansor, 2012; Ismail, 2006).

Subsequently, there have been very little research conducted on MVA in Asian countries, including Malaysia (Al Mamun & Abu Mansor, 2012; Sharma & Kumar, 2010). The study aimed to examine the relative and incremental information content between MVA as proxy of value based measures and accounting measures (NI, NOPAT, & EPS) with stock return on non-financial firms listed in Bursa Malaysia over the period 2002 to 2011. In other words, this study seeks to investigate whether MVA is a superior measure in prediction of stock return compared to NI, NOPAT and EPS.

The remainder of the paper is organized as follows; literature review, hypothesis, research variables, methodology, empirical findings, conclusion, limitations, and recommendations for future research.

Literature review

Finding a superior measure to evaluate a company's performance is one of the important subjects of recent financial researches. MVA is an option to approximate the stockholder value creation. MVA is a contrast between market value of company and capital supplied by the investors over a period of time. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.