Volume 10, Number 1, June 2015
| Using Economic Value Added over Equity as Indicator to Measure Enterprise Performance in Taiwan’s Securities Industry |
Abstract
Whereas the majority of previous research on the comparison of enterprise performance financial analyses focused on DuPont analysis, ROE, and EVA, this study attempts to use the more superior indicator EVAOE to measure the corporate performance in the Taiwanese securities industry. The results of this study show that when EVAOE is applied in the securities industry, it is more capable of explaining abnormal company stock returns than EVA, and has a relatively significant explanatory power for enterprise performance. The findings also show that the total shareholders’ equity, corporate type, and income type of securities companies have no significant effect on those companies’ abnormal stock returns. When the company type is a professional securities company instead of a subsidiary of another financial institution, its shareholders enjoy high abnormal stock returns on average. Securities companies with commissions as their major source of income have higher average abnormal stock returns than those with returns from investments. By increasing net profit margins and reducing the extent of use of financial leverage and the weighted average cost of capital, securities companies can improve their EVAOE. This is reflected in terms of abnormal company stock returns, thereby creating tremendous value for shareholders.
Keywords: Economic Value Added (EVA), Economic Value Added Over Equity (EVAOE), Return on Equity (ROE), Enterprise Performance
JEL Classification: G23, G24, L25