An analysis of the information content of economic value added as a performance measure of banks in Kenya
View/ Open
Date
2008-10Author
Kariuki, Caroline W
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
This paper analyses the information content of Economic Value Added (EVA)
performance indicator in the light of creating shareholder value within the banking
industry. With increasing pressure on firms to deliver shareholder value, there has been a
renewed emphasis on devising measures of corporate financial performance and incentive
compensation plans that encourage managers to increase shareholder wealth.
There is a growing number of studies examining which performance measure is the most
compatible with shareholder value maximization, but the evidence surrounding this issue
is mixed. In addition, few papers deal with this issue in the banking industry context.
This study examines both relative and incremental information content focusing on the
Kenyan banking industry. The investigation technique follows Biddle et ai., (1997), with
a few departures to better tailor the analysis to the peculiarities of a bank.
Our results suggest that the superiority of EVA is not verified in terms of relative
information content, but there is confirming evidence when considering the incremental
contribution provided by its components. One feature of our findings is that our results
are sensitive to accounting adjustments that deal with a bank's peculiar features and if
these distinctive characteristics are ignored when calculating EVA, there is little evidence
to support EVA's superiority as an indicator of shareholder value.
Citation
Masters Of Business Administration (MBA) Degree, University of NairobiPublisher
University of Nairobi School of Business
Description
A research project submitted in partial
fullfillment of the requirements for the
Degree of Masters in Business Administration