The Effectiveness of Economic Profits (EVA) versus accounting profits on stock returns as a measure of shareholders wealth creation. An empirical study of the FTSE 100 (2014)

Effectiveness of Economic Profits (EVA) Versus Accounting Profits Dissertation – Shareholders expect companies to best exploit their hard-earned money and provide decent returns either in the form of dividends or capital gains. But the main question is how those shareholders can accurately find out if the company they trusted their hard-earned money with is actually increasing their wealth and efficiently utilising their financial capital. Identifying the best fundamental measurement tool that assesses a company’s performance is one of the greatest challenges that shareholders face.

More recently, shareholders have been attracted to value-based financial performance measures that have gained huge popularity over the last two decades among consulting firms and especially in academic literature. This dissertation aims to find out if shareholders can truly rely on the EVA concept instead of traditional accounting measures as claimed by the EVA advocates. This study also aims to figure out which particular performance measurement tool or tools (whether based on economic or accounting) best explain shareholders wealth creation.

The findings of this study will help shareholders make sound investment decisions by knowing which particular performance measure or measures they can rely on when making investment decisions. This is a quantitative study, initially the data was obtained from the London Stock Exchange official website along with the relative companies’ financial statements, and then the necessary calculations (mainly for the economic measures) were made. Next, three different panel data regression tests were applied to investigate the explanatory power of the independent variables (economic measures and accounting measures) on stock returns (dependent variable) of 25 companies listed on the FTSE100 for the years 2009 to 2012.

  • 14,000 words – 70 pages in length
  • Excellent use of literature
  • Excellent analysis of subject area (finance models)
  • Well written throughout
  • Ideal for finance students

1. Introduction
Motivation of the Research
Problem Overview
Economic profits vs. accounting profits
Aim of the Research
The Research Methodology
Research Question
List of Objectives
Independent Variables Abbreviations and a brief description
Structure of the dissertation

2. Literature Review
The key differences between EVA and Residual Income
Proposed Accounting Adjustments by Stern Stewart and Co
MVA and its Relationship with EVA
The Relationship between EVA and NPV
Value-based Performance Measures that will be studied
Summary of the Advantages and Disadvantages of using EVA
Description of Accounting Measures
Advantages and Disadvantages of Accounting Profits Measures
The Pioneering Studies of Ben Stewart
Other Studies Supporting the Superiority of Economic Measures over Conventional Accounting Measures
Studies Supporting the Superiority of Conventional Accounting Measures over Economic Measures
The only known study on the EVA Momentum
The only known UK Study
Comments and the Gap in the Reviewed Literature

3 Research Methodology
The sample
Calculations Description for the Independent and Dependent Variables
Unilever Example for the Year 2012
Panel Regression vs. Linear Regression
The Research Tests
Description of the Three Conducted Tests

4. Tests Results
Test #1: Economic measures and Accounting measures separate panel regression tests results
Test #2: Stepwise Regression Test Results
Test #3: Panel Regression and
Post-hoc chi-square tests results

5. Analysis of Findings
Analysis of the Findings
Concluding Remarks

6. Conclusion
Concluding this study
Further Recommendations for Shareholders
Limitations and Proposed Extension of this Research



Economic Profits Versus Accounting Profits Dissertation
Economic Profits Versus Accounting Profits Dissertation

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