ENTER MVA: EVALUATION AS PERFORMANCE METRIC

Abstract

This popularity of value-based measures in corporate finance has been rising in recent years. Many claims have been made that EVA and MVA are the new holy grail of corporate performance measures. While there are limited studies testing on the information content of MVA, this research shall examine whether MVA is a superior performance measure over other relative performance measures. Using an international sample of 50 real estate companies in Hong Kong, United Kingdom and Japan, the author finds that MVA performance of the 3 countries were unsatisfactory and unable to contribute to shareholder's wealth over the study period from 1998-2004. In addition, MVA performances varied across the 3 countries and this points to the fact that the different real estate markets seem to be heavily influenced by the greater economic and real estate market conditions they operate it. Correlation analysis reveals that MVA does not seem to have a strong correlation with stock returns as compared to other relative performance measures. Hence, it does not seem to be a good indicator of stock prices. Results also suggest that the market usually places a premium on large firms and that bigger players in the market had been capital efficient and hence, most value creating. While this study does display correlation with stock returns, as supported by studies, they are mostly insignificant. Instead, results have shown that relative performance measures are able to explain stock returns exhibiting a stronger role. Overall, MVA appears to have failed to present itself as a more superior metric over relative performance measures.