The Association between Economic Value Added, Market Value Added and Leverage

Abstract

It is commonly agreed in notion that the financial aim of the firm should be the magnification of shareholder value as exposed in the market value of the firms' stocks. Shareholder value creation generally be represented by the Market Value Added (MVA). The best way to maximize MVA is to maximize Economic Value Added (EVA), which reflects the net earnings of the organization in surplus of the charges for shareholders' endowed capital. In this research leverage and EVA have been used as the independent variables whereas MVA has been used as the measure of shareholder wealth creation. Correlation and regression methods have been employed to find out in what way financial managers can practice the effects of leverage and EVA to maximize MVA. There is no indicative association between EVA and MVA and leverage and MVA, the findings reveal. Furthermore, the results showed that both EVA as well as leverage have no profound impact on Market Value Added of the selected listed private banks in Sri Lanka.