This article identifies firm-specific attributes with a substantial impact on the capabilities of listed South African companies to create shareholder value. It shows that the firm-specific attributes that contribute to shareholder value creation differ when value is measured using economic-based shareholder value measures, such as Economic Value Added (EVA) and Market Value Added (MVA), versus using accounting-based shareholder value measures, such as earnings per share (EPS). Data cover financial years from 2000 to 2018 for 35 JSE-listed companies. Multiple regression analysis is employed to study the relationships. The study revealed different results on shareholder value creation utilizing accounting-based and economic-based performance measures. Shareholder value measured by EVA is created by larger companies with higher profitability, lower systematic risk and efficient asset management. MVA identifies increased shareholder value for larger firms and higher profitability. MVA also pinpoints enhanced investor value by firms with lower liquidity ratios which invest less in research and development (R&D). EPS achieved different results from EVA and MVA, indicating that according to accounting-based measures, companies add value through lower profitability (measured by return on investment), efficient asset management and a higher risk profile. Understanding the effect of firm-specific attributes on shareholder value creation can assist managers in developing strategies and decision-making.
AghaH. (2014). Impact of working capital management on profitability. European Scientific Journal, 10(1). https://eujournal.org/index.php/esj/article/view/2568
2.
BarneyJ. B., & ArikanA. M. (2001). The resource-based view: Origins and implications. In HittM. A., FreemanR. E., & HarrisonJ. S., J.S. (Eds.), The Blackwell handbook of strategic management (pp. 124–188). Wiley-Blackwell.
3.
BerthonP., PittL., EwingM., & CarrC. L. (2002). Potential research space in MIS: A framework for envisioning and evaluating research replication, extension, and generation. Information Systems Research, 13(4), 416–427. https://dx.doi.org/10.1287/isre.13.4.416.71
4.
BiddleG. C., BowenR. M., & WallaceJ. S. (1997). Does EVA ® beat earnings? Evidence on associations with stock returns and firm values. Journal of Accounting and Economics, 24(3), 301–336. https://EconPapers.repec.org/RePEc:eee:jaecon:v:24:y:1997:i:3:p:301-336
5.
BititciU. S., MartinezV., AlboresP., & ParungJ. (2004). Creating and managing value in collaborative networks. International Journal of Physical Distribution & Logistics Management, 34(3/4), 251–268. https://doi.org/10.1108/09600030410533574
6.
BradfieldD., & GopiY. (2016). A note of the predictive power of the variance risk premium: South African evidence benchmarked against the USA. Studies in Economics and Econometrics, 40(2), 53–70. https://hdl.handle.net/10520/EJC193296
7.
BradaJ. C., GajewskiP., & KutanA. M. (2021). Economic resiliency and recovery, lessons from the financial crisis for the COVID-19 pandemic: A regional perspective from Central and Eastern Europe. International Review of Financial Analysis, 74, 101658. https://doi.org/10.1016/j.irfa.2021.101658
8.
BrockmanP., & ChungD. Y. (2003). Investor protection and firm liquidity. The Journal of Finance, 58(2), 921–937. https://doi.org/10.1111/1540-6261.00551
9.
CarstensR., & FreyboteJ. (2018). The impact of introducing REITs on foreign investments and liquidity in South Africa. Journal of Real Estate Literature, 26(1), 103–128.
10.
ChariM. D., & BanalievaE. R. (2015). How do pro-market reforms impact firm profitability? The case of India under reform. Journal of World Business, 50(2), 357–367. https://doi.org/10.1016/j.jwb.2014.05.004
11.
ChenS., & DoddJ. L. (1997). Economic value added (EVA): An empirical examination of a new corporate performance measure. Journal of Managerial Issues, 9(3), 318–333. https://www.jstor.org/stable/40604150
12.
ChenS., & DoddJ. L. (2001). Operating income, residual income and EVA™: Which metric is more value relevant?Journal of Managerial Issues, 13(1), 65–86. https://www.jstor.org/stable/40604334
13.
ChenH. C., & YehC. W. (2021). Global financial crisis and COVID-19: Industrial reactions. Finance Research Letters, 42, 101940. https://doi.org/10.1016/j.frl.2021.101940
14.
ChunH., KimJ. W., MorckR., & YeungB. (2008). Creative destruction and firm-specific performance heterogeneity. Journal of Financial Economics, 89(1), 109–135. https://doi.org/10.1016/j.jfineco.2007.06.005
15.
CoadA., HolmJ. R., KrafftJ., & QuatraroF. (2018). Firm age and performance. Journal of Evolutionary Economics, 28(1), 1–11. https://doi.org/10.1007/s00191-017-0532-6
De VilliersJ. U., & AuretC. J. (1998). A comparison of EPS and EVA as explanatory variables for share price. Studies in Economics and Econometrics, 22(2), 47–63. https://doi.org/10.1080/03796205.1998.12129124
18.
De WetJ. H. (2005). EVA versus traditional accounting measures of performance as drivers of shareholder value—A comparative analysis. Meditari Accountancy Research, 13(2), 1–16. https://doi.org/10.1108/10222529200500009
19.
ErasmusP. (2008). The relative and incremental information content of the value-based financial performance measure cash value added (CVA). Management Dynamics: Journal of the Southern African Institute for Management Scientists, 17(1), 2–15. https://journals.co.za/doi/abs/10.10520/EJC69734
20.
FerdaousJ., & RahmanM. M. (2017). The effects of research and development expenditure on firm performance: An examination of pharmaceuticals industry in Bangladesh. Business & Entrepreneurship Journal, 6(2), 1–20. https://www.researchgate.net/publication/337532772_The_Effects_of_Research_and_Development_Expenditure_on_Firm_Performance_An_Examination_of_Pharmaceuticals_Industry_in_Bangladesh
21.
ForoniC., MarcellinoM., & StevanovicD. (2020). Forecasting the Covid-19 recession and recovery: Lessons from the financial crisis. International Journal of Forecasting. https://doi.org/10.1016/j.ijforecast.2020.12.005
22.
GillA., BigerN., & MathurN. (2010). The relationship between working capital management and profitability: Evidence from the United States. Business and Economics Journal, 10(1), 1–9. https://www.researchgate.net/publication/284875433_The_Relationship_Between_Working_Capital_Management_And_Profitability_Evidence_From_The_United_States
23.
GreenblattJ. (2006). The little book that beats the market. Wiley.
24.
HallJ. H. (2013). Toward improved use of value creation measures in financial decision-making. Journal of Applied Business Research (JABR), 29(4), 1175–1188. https://doi.org/10.19030/jabr.v29i4.7924
25.
HallJ. H. (2016). Industry-specific determinants of shareholder value creation. Studies in Economics and Finance, 33(2), 190–208. https://doi.org/10.1108/SEF-08-2014-0155
26.
HallJ. H. (2018). Value creation measures: An industry-based study. International Journal of Productivity and Performance Management, 67(2), 426–444. https://doi.org/10.1108/IJPPM-08-2016-0178
27.
IchsaniS., & SuhardiA. R. (2015). The effect of return on equity (ROE) and return on investment (ROI) on trading volume. Procedia—Social and Behavioral Sciences, 211, 896–902. https://doi.org/10.1016/j.sbspro.2015.11.118
28.
Jansen van VuurenL. (2015). Assessing the impact of regulatory changes on the role of risk management in insurance companies(Doctoral dissertation, University of Pretoria). http://hdl.handle.net/2263/52985
29.
JónssonB. (2007). Does the size matter? The relationship between size and profitability of Icelandic firms. Bifröst Journal of Social Science Working Paper, 1, 43–55. https://skemman.is/bitstream/1946/7752/1/bjss-vol1-2007.pdf#page=43
30.
KakaniR. K., & KaulM. (2002). Firm performance and size in liberalized era: The Indian case. XLRI Jamshedpur School of Business Working Paper, (2002–06). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=905001
31.
KollerT., GoedhartM. H., & WesselsD. (2015). Valuation: Measuring and managing the value of companies (6th ed.). Wiley, McKinsey and Company.
32.
KwendaF. (2017). Working capital investment and firm value relationship: A non-linear perspective. Journal of Insurance and Financial Management, 3(4), 44–65.
33.
LambrechtsH., & RoosM. (2017). Applying Joel Greenblatt’s value investment strategy to the Johannesburg stock exchange. Management Dynamics: Journal of the Southern African Institute for Management Scientists, 26(1), 2–15. https://hdl.handle.net/10520/EJC-827f45e6e
34.
LawlorP. (2020, March25). QE comes to SA as Reserve Bank steps in to provide liquidity to the market. Investec. https://www.investec.com/en_za/focus/economy/quantitative-easing-comes-to-sa.html
35.
LeeJ. (2009). Does size matter in firm performance? Evidence from US public firms. International Journal of the Economics of Business, 16(2), 189–203. https://doi.org/10.1080/13571510902917400
36.
LeeS. (2014). The relationship between growth and profit: Evidence from firm-level panel data. Structural Change and Economic Dynamics, 28, 1–11. https://doi.org/10.1016/j.strueco.2013.08.002
37.
LiZ., FarmaneshP., KirikkaleliD., & ItaniR. (2021). A comparative analysis of COVID-19 and global financial crises: Evidence from US economy. Economic Research[Ekonomska Istraživanja], 1–15. https://doi.org/10.1080/1331677X.2021.1952640
38.
MaditinosD. I., ŠevicŽ., & TheriouN. G. (2009). Modelling traditional accounting and modern value-based performance measures to explain stock market returns in the Athens Stock Exchange (ASE). Journal of Modelling in Management, 4(3), 182–201. https://doi.org/10.1108/17465660911006431
39.
MalhotraP., & SinghB. (2007). Determinants of internet banking adoption by banks in India. Internet Research, 17(3), 323–339. https://doi.org/10.1108/10662240710758957
40.
MathuvaD. M. (2010). The influence of working capital management components on corporate profitability: A survey on Kenyan listed firms. Research Journal of Business Management, 4(1), 1–11. https://doi.org/10.3923/rjbm.2010.1.11
41.
NarangS., & KaurM. (2014). Impact of firm-specific attributes on shareholder value creation of Indian companies: An empirical analysis. Global Business Review, 15(4), 847–866. https://doi.org/10.1177/0972150914543422
42.
ObeidatM. I. (2020). Accounting versus economic based measures of performance and the share market value: The evidence of the industrial listed firms at Abu Dhabi Stock Exchange. https://www.semanticscholar.org/paper/Accounting-versus-Economic-Based-Measures-of-and-of-Obeidat-Darkal/e42aba826f97ba1cb354643c823f065d2abd7115
43.
PanigrahiS. K., ZainuddinY., & AzizanA. (2014). Comparing traditional and economic performance measures for creating shareholder’s value: A perspective from Malaysia. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(4), 280–289. http://dx.doi.org/10.6007/IJARAFMS/v4-i4/1345
44.
PástorĽ., & PietroV. (2003). Stock valuation and learning about profitability. The Journal of Finance, 58(5), 1749–1789. https://doi.org/10.1111/1540-6261.00587
45.
PeixotoS. M. (2002). Economic value added (R)-application to Portuguese public companies. http://dx.doi.org/10.2139/ssrn.302687
46.
PriemR. L., & ButlerJ. E. (2001). Is the resource-based ‘view’ a useful perspective for strategic management research?Academy of Management Review, 26(1), 22–40. https://doi.org/10.2307/259392
47.
SaleemQ., & RehmanR. U. (2011). Impacts of liquidity ratios on profitability (Case of oil and gas companies of Pakistan). Interdisciplinary Journal of Research in Business, 1(7), 95–98. https://journaldatabase.info/articles/impacts_liquidity_ratios_on.html
48.
SamilogluF., & AkgünA. İ. (2016). The relationship between working capital management and profitability: Evidence from Turkey. Business and Economics Research Journal, 7(2), 1–14. https://doi.org/10.20409/berj.2016217492
49.
ShumwayT. (2001). Forecasting bankruptcy more accurately: A simple hazard model. The Journal of Business, 74(1), 101–124. http://dx.doi.org/10.1086/209665
50.
SinghV. (2015). Significance of working capital turnover ratio: A case study of BHEL and Crompton Greaves. International Journal of Management (IJM), 6(3), 1–7.
51.
SirmonD. G., & HittM. A. (2003). Managing resources: Linking unique resources, management, and wealth creation in family firms. Entrepreneurship Theory and Practice, 27(4), 339–358. https://doi.org/10.1111/1540-8520.t01-1-00013
52.
SirmonD. G., HittM. A., & IrelandR. D. (2007). Managing firm resources in dynamic environments to create value: Looking inside the black box. Academy of Management Review, 32(1), 273–292. https://doi.org/10.5465/AMR.2007.23466005
53.
SørensenJ. B., & StuartT. E. (2000). Aging, obsolescence, and organizational innovation. Administrative Science Quarterly, 45(1), 81–112. https://doi.org/10.2307/2666980
54.
SougiannisT. (1994). The accounting based valuation of corporate R&D. Accounting Review, 69(1), 44–68. http://www.jstor.org/stable/248260
55.
StewartS. (1993). The Stern Stewart performance 1000 database package: Introduction and documentation. Stern Stewart Management Services.
56.
TsujiC. (2006). Does EVA beat earnings and cash flow in Japan?Applied Financial Economics, 16(16), 1199–1216. https://doi.org/10.1080/09603100500447537
57.
UkaegbuB. (2014). The significance of working capital management in determining firm profitability: Evidence from developing economies in Africa. Research in International Business and Finance, 31, 1–16. https://doi.org/10.1016/j.ribaf.2013.11.005
58.
Van der PollH. M., BooyseN. J., PienaarA. J., BüchnerS., & FootJ. (2011). An overview of the implementation of economic value added (EVA™) performance measures in South Africa. Southern African Business Review, 15(3), 122–141. https://www.ajol.info/index.php/sabr/article/view/76408
59.
van RensburgC. J., & KrigeJ. (2018). Paying the high price of active management: A new look at unit trust fees. Studies in Economics and Econometrics, 42(1), 23–40.
60.
VaraiyaN., KerinR. A., & WeeksD. (1987, September–October). The relationship between growth, profitability, and firm value. Strategic Management Journal, 8(5), 487–497. https://doi.org/10.1002/smj.4250080507
61.
VenugopalM., Ravindar ReddyM., & Bhanu Prakash SharmaG. (2018). Shareholder value creation: A review of the theoretical and empirical literature. Asia Pacific Journal of Management Research and Innovation, 14(3–4), 74–80. https://dx.doi.org/10.1177/2319510X18817189
62.
WallimanN. (2017). Research methods: The basics. Routledge.
63.
WestT., & WorthingtonA. C. (1999). The usefulness of economic value-added in the Australian context. Accounting, Accountability and Performance, 73–90. https://eprints.qut.edu.au/2570/
