Articlehybrid2012

The Quest for the Superior Financial Performance Measures

25 citations0/0 files storedInternational Journal of Economics and Finance

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Financial Reporting and Valuation Research Financial Markets and Investment Strategies Financial Analysis and Corporate Governance

Abstract

This study tries to answer whether value based measures are superior to traditional accounting measures in explaining stock returns. A pooling panel data method on 115 Iranian listed companies in the Tehran Stock Exchange (TSE) from 2001 to 2008 is used to investigate the explanatory power of four value-based measures (including Economic Value Added, Refined Economic Value Added, Market Value Added and Shareholder Value Added) compare to five accounting-based measures (including Earning Per Share, Return On Equity, Return On Assets, Cash Flow from Operations and Return On Sales) in explaining stock returns. Our findings do not provide evidence which support assertions that value-based measures are superior compared with other traditional accounting measures. Relative information content tests revealed that stock returns are more closely associated with ROA and ROE than other performance measures. Furthermore, incremental information content tests suggest that value-based measures add only marginally information content beyond accounting measures. However, the results indicate that accounting measures generally dominate value-based measures.

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References

1993Common risk factors in the returns on stocks and bonds 1992The Cross-Section of Expected Stock Returns 2021Econometric Analysis of Panel Data 2002Unit root tests in panel data: asymptotic and finite-sample properties 1995Predictable Risk and Returns in Emerging Markets 1994Predictable Risk and Returns in Emerging Markets 1997Does EVA® beat earnings? Evidence on associations with stock returns and firm values 1990CEO INCENTIVES — IT'S NOT HOW MUCH YOU PAY, BUT HOW*

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