THE EFFECT OF LEVERAGE AND ECONOMIC VALUE ADDED ON MARKET VALUE ADDED
Economic value added (EVA) is a performance measure developed by Stern Stewart & Co.) that attempts to measure the true economic profit produced by a company. Such a metric is useful for investors who wish to determine how well a company has produced value for its investors, and it can be comp...
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| Main Author: | |
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| Format: | Article |
| Language: | English |
| Published: |
Nicolae Titulescu University Publishing House
2018-05-01
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| Series: | Challenges of the Knowledge Society |
| Subjects: | |
| Online Access: | http://cks.univnt.ro/uploads/cks_2018_articles/index.php?dir=5_economic_sciences%2F&download=CKS_2018_economic_sciences_001.pdf |
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| Summary: | Economic value added (EVA) is a performance measure developed by Stern Stewart & Co.) that attempts to measure
the true economic profit produced by a company. Such a metric is useful for investors who wish to determine how well a
company has produced value for its investors, and it can be compared against the company's peers for a quick analysis of how
well the company is operating in its industry. Market value added (MVA), on the other hand, is simply the difference between
the current total market value of a company and the capital contributed by investors (including both shareholders and
bondholders). It is typically used for companies that are larger and publicly-traded. MVA is not a performance metric like
EVA, but instead is a wealth metric, measuring the level of value a company has accumulated over time. In order to maximise
the value for shareholders, companies should strive towards maximising MVA and not necessarily their total market value. It
is believed, that the best way to do so is to maximize EVA, which reflects a company’s ability to earn returns above the cost of
capital. The leverage available to companies that incur fixed costs and use borrowed capital with a fixed interest charge has
been known and quantified by financial managers for some time. In this research the effect of leverage and EVA on MVA as
the measure of shareholder wealth creation was analysed. Leverage and EVA have been used as the independent variables
whereas MVA has been used as the measure of shareholder wealth creation. Correlation and regression methods have been
employed to find out in what way financial managers can practice the effects of leverage and EVA to maximize MVA. The
results showed that EVA and leverage have no profound impact on MVA of the selected Slovak companies |
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| ISSN: | 2068-7796 2068-7796 |