IMPACT OF ECONOMIC VALUE ADDED AND TRADITIONAL ACCOUNTING MEASURES ON SHAREHOLDERS’ VALUE CREATION

Abstract

Maximizing shareholders’ value creation is a globally accepted objective of any business. There is a different type of measuring tools for measuring shareholder value. This study aims to explore the impact of Economic Value Added and traditional accounting measures on shareholder value creation based on the capital goods companies listed in Colombo stock exchange (CSE), Sri Lanka. This study used 22 capital goods companies listed in CSE for nine years considering the 2010 to 2018 period. The quantitative research method was applied using secondary data. Sample data were analyzed using the panel data regression model in STATA. Data was tested using the Random-effect model and Fixed-effect models. According to the study, Economic Value Added has a positive significant impact on shareholders’ value creation and Earning Per Share, Return on Assets, And Return on Equity have no significant impact on shareholders’ value creation. It explored that Economic Value Added has a high positive impact on Shareholders’ Value Creation and traditional accounting measures have no significant impact on Shareholder Value Creation in capital goods sector companies in Sri Lanka, therefore managers can consider Economic Value Added as most accurate measuring tool for shareholders value creation when making decisions, shareholders can make investment decisions and policy makers must pay attention on Economic Value Added when making policies regarding shareholder value creation.