Importance of economic value added and traditional performance measures in determining market value added: A case study of industrial companies listed on the Amman Stock Exchange

Abstract

The study explores the relationship between economic value added (EVA), traditional performance measures, and market value added (MVA). A sample of 19 publicly traded industrial companies listed on the Amman Stock Exchange from 2002 to 2023 was analyzed. Multiple regression analysis was employed to test this relationship. A statistically significant long-term positive relationship among MVA, EVA, and traditional performance measures, represented by return on assets (ROA) and return on equity (ROE), was observed. The results further indicated that traditional performance measures had a more significant role than EVA in determining MVA. Moreover, there are short-term negative effects of economic value added (EVA) changes on market value added (MVA), which underscores the difficulties companies face in responding to investors’ expectations in the market. While EVA has a positive long-term effect, negative short-term expectations may reflect a company’s inability to translate performance improvements into immediate increases in market value. The study recommends that Jordanian industrial companies improve their standards for ROA and ROE, considering their notable impact on MVA. The study also suggests that companies should focus more attention on disclosing EVA and MVA in their financial reports to align with the importance of traditional performance indicators.