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:: Asian Journal of Management Sciences and Education, Oyama, Japan. Online ISSN:2186-845X, Print ISSN:2186-8441 ::

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Asian Journal of Management Sciences & Education(AJMSE)Online ISSN:2186-845X, Print ISSN:2186-8441

Professor Dr. Muhammad Aslam Adeeb, The Islamia University of Bhawalpur, PAKISTAN.

Professor Dr. T. F. "Tim" McLaughlin, Gonzaga University, Spokane, Washington, USA.

Professor Dr. Manuel Alberto M. Ferreira, ISCTE Business School, University Institute of Lisbon, PORTUGAL.

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Professor Dr. Raja Suzana Raja Kasim, Faculty of Business and Entrepreneurship, Universiti Malaysia Kelantan (UiTM), MALAYSIA.

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Dr. José António Filipe, ISCTE Business School, University Institute of Lisbon, PORTUGAL.

Dr. Akhtar Ali, The Islamia University of Bahawalpur, PAKISTAN.

Dr. Abdullatif I. AL-Hussein, AL-Imam Mohamed Ibn Saud Islamic University, Al-Hfuf, SAUDI ARABIA. Dr.Huda Aldulaijan, King Faisal University, SAUDI ARABIA.

Dr. T. Tammy Orunaboka, University of Port Harcourt, Uniport,Rivers State, NIGERIA.

Dr. Abdul Qayyum Khan, COMSATS Institute of Information Technology, Wah Cantt, PAKISTAN.

Dr. Arzu KIS, Abant Izzet Baysal University, Bolu, TURKEY.

Dr. Lutfi Oksuz, Turkish Standards Institution, Konya, TURKEY.

Dr. Hassan Mujtaba, The Islamia University of Bahawalpur, PAKSTAN.

Dr. Mahdi Salehi, Ferdowsi University of Mashhad, Mashhad, IRAN.

Advisory Review Board

Dr. Yusuke KANEKO, Meiji University, JAPAN.

Dr. Marina Alexandra Pedro Andrade, ISCTE Business School, University Institute of Lisbon, PORTUGAL.

Dr. Mui Joo Tang, Tunku Abdul Rahman College, University of Malaya, KL, MALAYSIA.

Dr. Mei-Ling Wang, Institute of Business Administration, Tamkang University, Taipei, TAIWAN.

Dr. Lim Hock-Eam, College of Business, Universiti Utara Malaysia,MALAYSIA.

Dr. Rungrawee samawathdana, Faculty of Education, Chulalongkorn University, THAILAND.

Dr. Lau Teck Chai, Universiti Tunku Abdul Rahman, MALAYSIA.

Dr. Chong Lee-Lee, Faculty of Management, Multimedia University,Selangor, MALAYSIA.

Dr. Madiha Shah, Research Fellow, Faculty of Education,University of Malaya, MALAYSIA.

Dr. Munazza Mahmood, International Islamic University, Islamabad, PAKISTAN.

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Dr. Kishore Kumar Das, , Ravenshaw University, Cuttack, INDIA.

Dr Loh Kah Heng, Taylor’s University, MALAYSIA, & Queensland University, AUSTRALIA.

Dr. Rungrawee Samawathdana, Department of Curriculum and Instruction, Chulalongkorn University, THAILAND.

Dr. Effandi Zakaria, Department of Educational Methodology & Practices, Universiti Kebangsaan MALAYSIA.

Dr. Kiran Lata Dangwal, Department of Education, University of Lucknow, UP, INDIA.

Dr. Sajjad Hayat Akhtar, GMS Tambulk, Mardan, PAKISTAN.

Dr. Mohammed Kamaruddeen, Quantity Surveying Department, Federal Polytechnic Nasarawa, NIGERIA.

Dr. Haitham M.A Nakhleh, Zarqa, wadi al-hajar, alhajj sabree masaad street, JORDAN.

Dr. Tang Siew Fun, Taylor’s Business School, Taylor’s University, MALAYSIA.

Dr. Sufiana K. Malik, Education Department, National University of Modern Langauhes, PAKISTAN>

Dr. Selvarasu A., Department of Business Administration, Annamalai University, INDIA.

Dr. Syed Iftikhar Hussain Shah,R&D Department, TEVTA Punjab, PAKISTAN.

Dr. Muhammad Nafees, FG Sir Syed School & College of Special Education, Rawalpindi, PAKISTAN.

Dr. Faris Nasif Faris Al- Shubiri, Department of Finance and Banks, Amman Arab University for Graduate Studies, Amman, JORDAN.

Tolulope Victoria Gbadamosi, Emmanuel Alayande College of Education, Oyo, NIGERIA.

Lydia Kiroff, Faculty of Technology and Built Environment, UNITEC, Auckland, NEW ZEALAND.

Liaqat Hussain, IER, Gomal University, DIKhan, PAKISTAN.

Imran A. Shahzad, Skema Business School, Sophia Antipolis, FRANCE & Muhammad Ali Jinnah University, Islamabad, PAKISTAN.

R.Krishna Priya, Department of Management Science, Dr. Babasaheb Ambedkar Marathwada University, Aurangabad, INDIA.

Fatemeh Shayan, School of Management/Political Science and International Relations, Tampere University, FINLAND.

Garry Tan Wei Han, Centre for Business and Management, Universiti Tunku Abdul Rahman, MALAYSIA.

Felipe B. Martinez,De La Salle University, Dasmariñas City, Cavite, PHILIPPINES.

Siti Hasnawati Jamal, Chemical Engineering Department, National Defence University of Malaysia,KL, MALAYSIA.

Samuel Zerabruk Tesfay, Collage of Natural and Computational Sciences, Mekelle University, ETHIOPIA.

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Gordon Chiagozie Ononiwu, Department of Electronics and Electrical Engineering, Federal University of Technology, Owerri, NIGERIA

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Vol. 1. No. 3. October 2012

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ACCOUNTING CRITERIA AND ECONOMIC PERFORMANCE EVALUATION WITH

STOCK RETURN: IRANIAN SCENARIO

Mohammad Hossein Vadiei , Seyyed Mohammad Hosseini

Department of Accounting,

Ferdowsi University of Mashad,

IRAN.

smh970@gmail.com

ABSTRACT

The main objective of investors from investing in share companies is increasing wealth;

which can be achieved by return acquiring from purchased shares. The purpose of

current study is to investigate the possible relation between Stock returns the tow

independent variables (Economic Value Added and Tobin’s Q Ratio reported by

companies). The outcome of the study can suggest criteria to investors to make a

convenient decision in comparison between different shares. Totally 120 listed companies

in Tehran Stock Exchange are chosen during 2005-2009 as a sample of the study. The

results indicate that the 95 percent confidence level, Tobin Q indicator variable

relationship with stock returns is significant but the economic value is not significant

relation with stock returns. Moreover, these two independent variables, together can

explain stock returns. Determination coefficient obtained for the above relationship

shows that only part of the independent variables could explain the stock returns and

investors should evaluate stock returns, other factors are also considered.

Keywords: Economic value added, Tobin's Q Ratio, Stock return.

INTRODUCTION

Now days, a lot of companies conduct their affairs and control of professional managers utilize.

Shareholders in these companies in their resources available to managers and administrators on

how to use the resources they decide consequently; due separation of ownership from

management, the owners always concerned about good performance in the use of resources and

create value for companies and consequently is increasing shareholder wealth. In addition to

shareholders, board of economic performance for the creditors to decide on the amount and rate

of credit is important. Therefore; order to attract investors' confidence should properly evaluate

corporate performance and ultimately their value expectations and provided good returns they

receive from profitable business operations can provide. In practice, since several methods for

evaluating the performance occurred in these methods there are various indicators that they are

calculated from data obtained from accounting information, market, economic or combination of

them used. At any time, owners of tools to evaluate management performance and use different

criteria have always been followed by the best standards, so that efforts to achieve efficient

management and performance evaluation criteria in order to create value for the company to

achieve the goal of maximizing shareholder wealth continues Other aspects; create value for

companies that are leading to changes in shareholder wealth, the pricing on the stock market,

companies that actually the existence pricing supply and demand factors such as size, activity of

speculators, the general market climate, important external events and sometimes important

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political news and economic happens that this causes and factors other than the actual

performance of domestic companies, the stock price volatility affect.

RESEARCH'S MAIN OBJECTIVES

Stock return is widely accepted as the best measure of external value creation and the one to

measure corporate performance .The internal measure of value creation and corporate

performance are related to fundamental analysis. Doing stronger fundamental analysis results to

measuring more accurate intrinsic value. Economic value added pinpoints the ability of value

creation and performance measurement from an internal view and Tobin Q ratio as a stock

valuation model releases the other side of fundamental analysis frame work. As a result of

preceding discussion, it is clear that the probable correlation between economic value added (as

an internal measure) and Tobin Q ratio, Stock Returns maybe important for investors and

decision makers.

LITERATURE REVIEW

Milbourn (1997) studied the correlation between economic value added measure and refined

economic value added by the evaluated and they concluded that the economic value of refining

capacity in the prediction value than standard value added to the economic. Machuga(2002) in

research as economic value added, accounting for future income and financial analysis in relation

to earnings per share forecast concluded that adjustments in economic value added additional

information to explain the changes and future earnings per share Cash flow and accrual

components of earnings is.

Like Richard (2005) in research on changes associated with changes in the economic value of

inflation have been studied shows that when inflation is low, change in economic value did not

associated with changes in inflation. Griffith (2006) research in relation to rights and benefits

and performance management chief executive circle began. their rights and benefits managers in

five different groups, including salary, cash bonuses, advance, and pays total options granted

were classified Scale and for performance evaluation of the market value ratio, Tobin Q and

three-year stock returns, were used. And concluded that the size and performance, executives

rights does not affect the risk while, term, title, ownership and age, law administrators studied

the effect of severe and against previous findings and found that expected under the Advance

Risk effect, strength or number of executives and managers combined Thresholds.

Vadiei and Rad Razavi (2008) Investment in research to investigate the effect of VAT paid

market research findings showed that:

a. News announcement taken from the cash capital increase and demands on increasing

shareholder value the market is effective.

b. Action taken to increase capital from shareholders cash and demands on reducing the

market value is effective.

c. Increase capital from retained earnings to shareholders in cash brought less effect on

changes in market value is.

By reviewing the above mentioned literature the following question may arise:

I. Is there any correlation between Tobin Q ratio and stock returns?

II. Is there any correlation between EVA and stock returns?

III. Among EVA and Tobin Q ratio, which one is a good performance measure?

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To answer these questions, research hypothesis are composed as follows:

H01: There is a meaningful correlation between Tobin Q ratio and Stock Returns.

H02: There is a meaningful correlation between EVA and stock returns.

H03: There is a meaningful correlation between EVA and Tobin Q ratio with Stock Returns and

have more economic value than the returns on index is Tobin Q.

EMPIRICAL METHODOLOGY

The objective of this research is to examine the correlation between dependent and independent

variables. Assuming that equity markets are efficient, Stock Returns may be used to compare the

information content of performance measures in a regression based approach. Both relative and

incremental information content comparisons are made the first methodological requirement is to

specify the samples election method. Data base included 387 industrial companies in TSE during

2004-2008; this period is the prosperity of TSE and company's stocks are actually traded. For

any given year under consideration, four criteria were used in selecting sample firms(i) the fiscal

year- end of the firm is March 20 , (ii) the firm according to the TSE conditions is actually

traded, (iii) the relevant data are not missing .In final 120 industrial companies listed in Tehran

Stock Exchange(TSE) are selected as sample.

The second methodological requirement is to specify collecting data and calculating variables.

All the data used in this research are gathered from financial statements, Tadbir Pardaz and

Novin Rahavard and TSE archive.EVA and Tobin Q ratio are independent and Stock Returns is

dependent variables .Because of the information gathering limitations, EVA is calculated as

follows:

EVA = (ROIC - WACC) x IC, where

ROIC = return on invested capital

WACC = Weighted Average Cost of Capital

IC = Invested Capital (at the beginning of the year)

Tobin Q ratio is calculated by dividing "Company market value at the end of the fiscal year" by

"Book value assets". Stock Returns is computed from TSE archive.

The models that relate independent variables to stock returns are used to examine the hypothesis.

SPSS software analyzed statistical data. Equation below shows the firm valuation model:

Yi = β0 + β 1 X1 i + β2 X2 i + … + βk Xk i+εi

i: the number of company, k: independent variable

Research hypothesis are examined using the above model. In this study, the independent variable

is normalized by Kolmogrov Smirnov test. Considering above, following models are drawn:

(1) Ri = β0 + β 1 EVAi + εi

(2) Ri = β0 + β 1 Q i+ εi

(3) Ri = β0 + β 1 EVA i + β2 Qi+ εi

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The summary results of statistical test are given in table below.

Table 1. Statistical results of the first hypothesis & second hypothesis

Correlations Correlations

R EVA R Q

R

Pearson

Correlation 1 0.87

R

Pearson

Correlation 1 0.098

Sig. (2-tailed) 0.205 Sig. (2-tailed) 0.021

N 600 600 N 600 600

EVA

Pearson

Correlation 0.057 1

Q

Pearson

Correlation .098

* 1

Sig. (2-tailed) 0.205 Sig. (2-tailed) 0.021

N 600 600 N 600 600

According to Table (1) can be seen that the correlation coefficient between independent variables

and dependent variable economic value equal to 087 returns. Probability is amount to evaluate

the significance of more than 5 percent. So therefore there with 95 percent probability a

significant relationship shall be not confirmed and According to Table (1) can be seen that the

correlation coefficient between independent variables and dependent variable Tobin Q ratio

equal to 098 returns. Probability is amount to evaluate the significance of less than 5 percent. So

therefore there with 95 percent probability a significant relationship shall be confirmed.

Table 2. Statistical results of the Third hypothesis

Correlations

R Q EVA

R

Pearson Correlation 1 0.101 0.159

Sig. (2-tailed)

0.027 0

N 600 600 600

Q

Pearson Correlation 0.079 0.101 -0.002

Sig. (2-tailed) 0.057

0.965

N 600 600 600

EVA

Pearson Correlation -0.022 0.101 1

Sig. (2-tailed) 0.599 0.965

N 600 600 600

Table 2 correlation between independent variables and the Tobin Q ratio of economic value

associated with variable Stock returns are presented in all cases significant levels of less than 5

percent. Therefore with 95 percent probability significant correlation can be confirmed.

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Table 3.The summary results of statistical test

CONCLUSION

Review the results of tests of different hypotheses suggested by the results in this study that

affected governing community in Iran is different. But what of the results of this research is

obtained suggests that the Tobin Q ratio compared with the economic value of content, and enjoy

more information can be considered as a variable accounting investors in the Tehran Stock

Exchange be.The most important reason not to apply this distinction in the inflation rate and

economic value that it relies on historical data values.

REFERENCES

Austin, L.M. (2006)."Benchmarking to Economic Value Added", Benchmarking: An

International Journal, Vol. 12, No. 2, pp. 138-150.

Bacidore ، Jeffrey M. ، John A.Boquist ، Todd T.Milbourn ، and Anjan V.Thakor (1997). "The

Search for the Best Financial Performance Measure." Financial Analysts Journal, May/June

Issue pp. 11-20.

Burkette, G. D. and T. P. Hedlly (1999). "The Truth About Economic Value Added", CPA

Journal, Vol. 67. Issue 7, pp. 46-4.

Tobin, J. (1969) "A general equilibrium approach to monetary theory", Journal of Money, Credit

and Banking, 1, 15-29.

Machuga, S.M., Pfeiffer, Jr. R.J., Verma, K. (2002). "Economic Value Added, Future

Accounting Earnings, and Financial Analysts' Earnings Per Share Forecasts". Review of

Quantitative Finance and Accounting, 18: 59-73.

Richard, S. Warr (2005). "An Empirical Study of Inflation Distortions to EVA". Journal of

Economics and Business, Vol. 57, No. 2, pp. 119-137.

Griffith, J., M. Najand (2006). "REIT Executive Compensation, Performance, and Management

Power": Evidence from Panel Data". Journal of Asset Management, 8, pp. 52–57.

Vadiei and Rad, Razavi (2008). "The effect of capital-market value of companies listed in

Tehran Stock Exchange "Literature & Development, Year Fifteen, No. 23, Vol. 15, pp.171-190.

No Hypothesis Result

1 H0: There is a correlation between Eva and Stock Returns

H0 H1: There is not a correlation between Eva and Stock Returns

2 H0: There is a correlation between Tobin Q ratio and Stock Returns.

H1 H1: There is not a correlation between Tobin Q ratio and Stock Returns

3

H0:There is a correlation between EVA and Tobin Q ratio with Stock

Returns and have more economic value than the returns on index is Tobin Q. H0

H1:There is not a correlation between EVA and Tobin Q ratio with Stock

Returns and have more economic value than the returns on index is Tobin Q.