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:: Asian Journal of Management Sciences and Education, Oyama, Japan. Online ISSN:2186-845X, Print ISSN:2186-8441 ::
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:: Asian Journal of Management Sciences and Education, Oyama, Japan. Online ISSN:2186-845X, Print ISSN:2186-8441 ::
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Asian Journal of Management Sciences & Education(AJMSE)Online ISSN:2186-845X, Print ISSN:2186-8441
Professor Dr. Muhammad Aslam Adeeb, The Islamia University of Bhawalpur, PAKISTAN.
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Professor Dr. Raja Suzana Raja Kasim, Faculty of Business and Entrepreneurship, Universiti Malaysia Kelantan (UiTM), MALAYSIA.
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Dr. José António Filipe, ISCTE Business School, University Institute of Lisbon, PORTUGAL.
Dr. Akhtar Ali, The Islamia University of Bahawalpur, PAKISTAN.
Dr. Abdullatif I. AL-Hussein, AL-Imam Mohamed Ibn Saud Islamic University, Al-Hfuf, SAUDI ARABIA. Dr.Huda Aldulaijan, King Faisal University, SAUDI ARABIA.
Dr. T. Tammy Orunaboka, University of Port Harcourt, Uniport,Rivers State, NIGERIA.
Dr. Abdul Qayyum Khan, COMSATS Institute of Information Technology, Wah Cantt, PAKISTAN.
Dr. Arzu KIS, Abant Izzet Baysal University, Bolu, TURKEY.
Dr. Lutfi Oksuz, Turkish Standards Institution, Konya, TURKEY.
Dr. Hassan Mujtaba, The Islamia University of Bahawalpur, PAKSTAN.
Dr. Mahdi Salehi, Ferdowsi University of Mashhad, Mashhad, IRAN.
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Dr. Yusuke KANEKO, Meiji University, JAPAN.
Dr. Marina Alexandra Pedro Andrade, ISCTE Business School, University Institute of Lisbon, PORTUGAL.
Dr. Mui Joo Tang, Tunku Abdul Rahman College, University of Malaya, KL, MALAYSIA.
Dr. Mei-Ling Wang, Institute of Business Administration, Tamkang University, Taipei, TAIWAN.
Dr. Lim Hock-Eam, College of Business, Universiti Utara Malaysia,MALAYSIA.
Dr. Rungrawee samawathdana, Faculty of Education, Chulalongkorn University, THAILAND.
Dr. Lau Teck Chai, Universiti Tunku Abdul Rahman, MALAYSIA.
Dr. Chong Lee-Lee, Faculty of Management, Multimedia University,Selangor, MALAYSIA.
Dr. Madiha Shah, Research Fellow, Faculty of Education,University of Malaya, MALAYSIA.
Dr. Munazza Mahmood, International Islamic University, Islamabad, PAKISTAN.
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Dr. Kishore Kumar Das, , Ravenshaw University, Cuttack, INDIA.
Dr Loh Kah Heng, Taylor’s University, MALAYSIA, & Queensland University, AUSTRALIA.
Dr. Rungrawee Samawathdana, Department of Curriculum and Instruction, Chulalongkorn University, THAILAND.
Dr. Effandi Zakaria, Department of Educational Methodology & Practices, Universiti Kebangsaan MALAYSIA.
Dr. Kiran Lata Dangwal, Department of Education, University of Lucknow, UP, INDIA.
Dr. Sajjad Hayat Akhtar, GMS Tambulk, Mardan, PAKISTAN.
Dr. Mohammed Kamaruddeen, Quantity Surveying Department, Federal Polytechnic Nasarawa, NIGERIA.
Dr. Haitham M.A Nakhleh, Zarqa, wadi al-hajar, alhajj sabree masaad street, JORDAN.
Dr. Tang Siew Fun, Taylor’s Business School, Taylor’s University, MALAYSIA.
Dr. Sufiana K. Malik, Education Department, National University of Modern Langauhes, PAKISTAN>
Dr. Selvarasu A., Department of Business Administration, Annamalai University, INDIA.
Dr. Syed Iftikhar Hussain Shah,R&D Department, TEVTA Punjab, PAKISTAN.
Dr. Muhammad Nafees, FG Sir Syed School & College of Special Education, Rawalpindi, PAKISTAN.
Dr. Faris Nasif Faris Al- Shubiri, Department of Finance and Banks, Amman Arab University for Graduate Studies, Amman, JORDAN.
Tolulope Victoria Gbadamosi, Emmanuel Alayande College of Education, Oyo, NIGERIA.
Lydia Kiroff, Faculty of Technology and Built Environment, UNITEC, Auckland, NEW ZEALAND.
Liaqat Hussain, IER, Gomal University, DIKhan, PAKISTAN.
Imran A. Shahzad, Skema Business School, Sophia Antipolis, FRANCE & Muhammad Ali Jinnah University, Islamabad, PAKISTAN.
R.Krishna Priya, Department of Management Science, Dr. Babasaheb Ambedkar Marathwada University, Aurangabad, INDIA.
Fatemeh Shayan, School of Management/Political Science and International Relations, Tampere University, FINLAND.
Garry Tan Wei Han, Centre for Business and Management, Universiti Tunku Abdul Rahman, MALAYSIA.
Felipe B. Martinez,De La Salle University, Dasmariñas City, Cavite, PHILIPPINES.
Siti Hasnawati Jamal, Chemical Engineering Department, National Defence University of Malaysia,KL, MALAYSIA.
Samuel Zerabruk Tesfay, Collage of Natural and Computational Sciences, Mekelle University, ETHIOPIA.
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Gordon Chiagozie Ononiwu, Department of Electronics and Electrical Engineering, Federal University of Technology, Owerri, NIGERIA
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アシエン ヅロナル オフ メネゲメント サイネセゾ アナド エグケサン
ISSN: 2186-845X ISSN: 2186-8441 Print
Vol. 1. No. 3. October 2012
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P a g e | 5
ACCOUNTING CRITERIA AND ECONOMIC PERFORMANCE EVALUATION WITH
STOCK RETURN: IRANIAN SCENARIO
Mohammad Hossein Vadiei , Seyyed Mohammad Hosseini
Department of Accounting,
Ferdowsi University of Mashad,
IRAN.
ABSTRACT
The main objective of investors from investing in share companies is increasing wealth;
which can be achieved by return acquiring from purchased shares. The purpose of
current study is to investigate the possible relation between Stock returns the tow
independent variables (Economic Value Added and Tobin’s Q Ratio reported by
companies). The outcome of the study can suggest criteria to investors to make a
convenient decision in comparison between different shares. Totally 120 listed companies
in Tehran Stock Exchange are chosen during 2005-2009 as a sample of the study. The
results indicate that the 95 percent confidence level, Tobin Q indicator variable
relationship with stock returns is significant but the economic value is not significant
relation with stock returns. Moreover, these two independent variables, together can
explain stock returns. Determination coefficient obtained for the above relationship
shows that only part of the independent variables could explain the stock returns and
investors should evaluate stock returns, other factors are also considered.
Keywords: Economic value added, Tobin's Q Ratio, Stock return.
INTRODUCTION
Now days, a lot of companies conduct their affairs and control of professional managers utilize.
Shareholders in these companies in their resources available to managers and administrators on
how to use the resources they decide consequently; due separation of ownership from
management, the owners always concerned about good performance in the use of resources and
create value for companies and consequently is increasing shareholder wealth. In addition to
shareholders, board of economic performance for the creditors to decide on the amount and rate
of credit is important. Therefore; order to attract investors' confidence should properly evaluate
corporate performance and ultimately their value expectations and provided good returns they
receive from profitable business operations can provide. In practice, since several methods for
evaluating the performance occurred in these methods there are various indicators that they are
calculated from data obtained from accounting information, market, economic or combination of
them used. At any time, owners of tools to evaluate management performance and use different
criteria have always been followed by the best standards, so that efforts to achieve efficient
management and performance evaluation criteria in order to create value for the company to
achieve the goal of maximizing shareholder wealth continues Other aspects; create value for
companies that are leading to changes in shareholder wealth, the pricing on the stock market,
companies that actually the existence pricing supply and demand factors such as size, activity of
speculators, the general market climate, important external events and sometimes important
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political news and economic happens that this causes and factors other than the actual
performance of domestic companies, the stock price volatility affect.
RESEARCH'S MAIN OBJECTIVES
Stock return is widely accepted as the best measure of external value creation and the one to
measure corporate performance .The internal measure of value creation and corporate
performance are related to fundamental analysis. Doing stronger fundamental analysis results to
measuring more accurate intrinsic value. Economic value added pinpoints the ability of value
creation and performance measurement from an internal view and Tobin Q ratio as a stock
valuation model releases the other side of fundamental analysis frame work. As a result of
preceding discussion, it is clear that the probable correlation between economic value added (as
an internal measure) and Tobin Q ratio, Stock Returns maybe important for investors and
decision makers.
LITERATURE REVIEW
Milbourn (1997) studied the correlation between economic value added measure and refined
economic value added by the evaluated and they concluded that the economic value of refining
capacity in the prediction value than standard value added to the economic. Machuga(2002) in
research as economic value added, accounting for future income and financial analysis in relation
to earnings per share forecast concluded that adjustments in economic value added additional
information to explain the changes and future earnings per share Cash flow and accrual
components of earnings is.
Like Richard (2005) in research on changes associated with changes in the economic value of
inflation have been studied shows that when inflation is low, change in economic value did not
associated with changes in inflation. Griffith (2006) research in relation to rights and benefits
and performance management chief executive circle began. their rights and benefits managers in
five different groups, including salary, cash bonuses, advance, and pays total options granted
were classified Scale and for performance evaluation of the market value ratio, Tobin Q and
three-year stock returns, were used. And concluded that the size and performance, executives
rights does not affect the risk while, term, title, ownership and age, law administrators studied
the effect of severe and against previous findings and found that expected under the Advance
Risk effect, strength or number of executives and managers combined Thresholds.
Vadiei and Rad Razavi (2008) Investment in research to investigate the effect of VAT paid
market research findings showed that:
a. News announcement taken from the cash capital increase and demands on increasing
shareholder value the market is effective.
b. Action taken to increase capital from shareholders cash and demands on reducing the
market value is effective.
c. Increase capital from retained earnings to shareholders in cash brought less effect on
changes in market value is.
By reviewing the above mentioned literature the following question may arise:
I. Is there any correlation between Tobin Q ratio and stock returns?
II. Is there any correlation between EVA and stock returns?
III. Among EVA and Tobin Q ratio, which one is a good performance measure?
アシエン ヅロナル オフ メネゲメント サイネセゾ アナド エグケサン
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Vol. 1. No. 3. October 2012
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P a g e | 7
To answer these questions, research hypothesis are composed as follows:
H01: There is a meaningful correlation between Tobin Q ratio and Stock Returns.
H02: There is a meaningful correlation between EVA and stock returns.
H03: There is a meaningful correlation between EVA and Tobin Q ratio with Stock Returns and
have more economic value than the returns on index is Tobin Q.
EMPIRICAL METHODOLOGY
The objective of this research is to examine the correlation between dependent and independent
variables. Assuming that equity markets are efficient, Stock Returns may be used to compare the
information content of performance measures in a regression based approach. Both relative and
incremental information content comparisons are made the first methodological requirement is to
specify the samples election method. Data base included 387 industrial companies in TSE during
2004-2008; this period is the prosperity of TSE and company's stocks are actually traded. For
any given year under consideration, four criteria were used in selecting sample firms(i) the fiscal
year- end of the firm is March 20 , (ii) the firm according to the TSE conditions is actually
traded, (iii) the relevant data are not missing .In final 120 industrial companies listed in Tehran
Stock Exchange(TSE) are selected as sample.
The second methodological requirement is to specify collecting data and calculating variables.
All the data used in this research are gathered from financial statements, Tadbir Pardaz and
Novin Rahavard and TSE archive.EVA and Tobin Q ratio are independent and Stock Returns is
dependent variables .Because of the information gathering limitations, EVA is calculated as
follows:
EVA = (ROIC - WACC) x IC, where
ROIC = return on invested capital
WACC = Weighted Average Cost of Capital
IC = Invested Capital (at the beginning of the year)
Tobin Q ratio is calculated by dividing "Company market value at the end of the fiscal year" by
"Book value assets". Stock Returns is computed from TSE archive.
The models that relate independent variables to stock returns are used to examine the hypothesis.
SPSS software analyzed statistical data. Equation below shows the firm valuation model:
Yi = β0 + β 1 X1 i + β2 X2 i + … + βk Xk i+εi
i: the number of company, k: independent variable
Research hypothesis are examined using the above model. In this study, the independent variable
is normalized by Kolmogrov Smirnov test. Considering above, following models are drawn:
(1) Ri = β0 + β 1 EVAi + εi
(2) Ri = β0 + β 1 Q i+ εi
(3) Ri = β0 + β 1 EVA i + β2 Qi+ εi
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The summary results of statistical test are given in table below.
Table 1. Statistical results of the first hypothesis & second hypothesis
Correlations Correlations
R EVA R Q
R
Pearson
Correlation 1 0.87
R
Pearson
Correlation 1 0.098
Sig. (2-tailed) 0.205 Sig. (2-tailed) 0.021
N 600 600 N 600 600
EVA
Pearson
Correlation 0.057 1
Q
Pearson
Correlation .098
* 1
Sig. (2-tailed) 0.205 Sig. (2-tailed) 0.021
N 600 600 N 600 600
According to Table (1) can be seen that the correlation coefficient between independent variables
and dependent variable economic value equal to 087 returns. Probability is amount to evaluate
the significance of more than 5 percent. So therefore there with 95 percent probability a
significant relationship shall be not confirmed and According to Table (1) can be seen that the
correlation coefficient between independent variables and dependent variable Tobin Q ratio
equal to 098 returns. Probability is amount to evaluate the significance of less than 5 percent. So
therefore there with 95 percent probability a significant relationship shall be confirmed.
Table 2. Statistical results of the Third hypothesis
Correlations
R Q EVA
R
Pearson Correlation 1 0.101 0.159
Sig. (2-tailed)
0.027 0
N 600 600 600
Q
Pearson Correlation 0.079 0.101 -0.002
Sig. (2-tailed) 0.057
0.965
N 600 600 600
EVA
Pearson Correlation -0.022 0.101 1
Sig. (2-tailed) 0.599 0.965
N 600 600 600
Table 2 correlation between independent variables and the Tobin Q ratio of economic value
associated with variable Stock returns are presented in all cases significant levels of less than 5
percent. Therefore with 95 percent probability significant correlation can be confirmed.
アシエン ヅロナル オフ メネゲメント サイネセゾ アナド エグケサン
ISSN: 2186-845X ISSN: 2186-8441 Print
Vol. 1. No. 3. October 2012
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P a g e | 9
Table 3.The summary results of statistical test
CONCLUSION
Review the results of tests of different hypotheses suggested by the results in this study that
affected governing community in Iran is different. But what of the results of this research is
obtained suggests that the Tobin Q ratio compared with the economic value of content, and enjoy
more information can be considered as a variable accounting investors in the Tehran Stock
Exchange be.The most important reason not to apply this distinction in the inflation rate and
economic value that it relies on historical data values.
REFERENCES
Austin, L.M. (2006)."Benchmarking to Economic Value Added", Benchmarking: An
International Journal, Vol. 12, No. 2, pp. 138-150.
Bacidore ، Jeffrey M. ، John A.Boquist ، Todd T.Milbourn ، and Anjan V.Thakor (1997). "The
Search for the Best Financial Performance Measure." Financial Analysts Journal, May/June
Issue pp. 11-20.
Burkette, G. D. and T. P. Hedlly (1999). "The Truth About Economic Value Added", CPA
Journal, Vol. 67. Issue 7, pp. 46-4.
Tobin, J. (1969) "A general equilibrium approach to monetary theory", Journal of Money, Credit
and Banking, 1, 15-29.
Machuga, S.M., Pfeiffer, Jr. R.J., Verma, K. (2002). "Economic Value Added, Future
Accounting Earnings, and Financial Analysts' Earnings Per Share Forecasts". Review of
Quantitative Finance and Accounting, 18: 59-73.
Richard, S. Warr (2005). "An Empirical Study of Inflation Distortions to EVA". Journal of
Economics and Business, Vol. 57, No. 2, pp. 119-137.
Griffith, J., M. Najand (2006). "REIT Executive Compensation, Performance, and Management
Power": Evidence from Panel Data". Journal of Asset Management, 8, pp. 52–57.
Vadiei and Rad, Razavi (2008). "The effect of capital-market value of companies listed in
Tehran Stock Exchange "Literature & Development, Year Fifteen, No. 23, Vol. 15, pp.171-190.
No Hypothesis Result
1 H0: There is a correlation between Eva and Stock Returns
H0 H1: There is not a correlation between Eva and Stock Returns
2 H0: There is a correlation between Tobin Q ratio and Stock Returns.
H1 H1: There is not a correlation between Tobin Q ratio and Stock Returns
3
H0:There is a correlation between EVA and Tobin Q ratio with Stock
Returns and have more economic value than the returns on index is Tobin Q. H0
H1:There is not a correlation between EVA and Tobin Q ratio with Stock
Returns and have more economic value than the returns on index is Tobin Q.