Economic value added and comparing it to other financial operational approaches for explaining company's market value in different industries in Tehran stock exchange

Abstract

The main goal of the firms is shareholder wealth maximization. Today, investors, creditors and managers attempt to find a timely and reliable index to measure the wealth of shareholders. Performance measurement is an effective factor on shareholder wealth maximization. Firms performance measurement to ensure efficient allocation of limited resources is vital and if appropriate measure of performance and shareholder value are not used the, firm doesn’t move into real value and allocating capital is not done correctly. The present study determined the best variable explaining the market value of the companies listed on TSE. To do this, the effect of four variables including 2 criteria of traditional performance (net operating profit after tax, P/E per share) and two criteria of economical performance evaluation (economic value added (EVA) and free cash flow) on market value of the company were evaluated. The study sample consisted of companies of four industries (cement, automobiles, pharmaceuticals and chemicals) listed on TSE during the 1998-2009 were chosen. Results indicate that the type of industry is effective in determining the best variable determining the market value of the company and no single measure is presented as the best measure of determining the market value of the company a in all industries.