Financial Performance Measures And Shareholder Value Creation: An Empirical Study For Chilean Companies

Abstract

This paper focuses on the most important Chilean companies and studies whether EVA^TM dominates REVA and competing accounting measure in explaining shareholder value creation. Our results indicate that REVA outperforms alternative measures in associations among their current and lagged realizations and value creation. However, at the industry level, REVA explains value creation only for construction and investment industries. For the remaining industries, in addition to the high explanatory power associated to REVA, the net income and operating cash flows help to explain only a low portion. We conclude that accounting measures should be only considered as marginal complementary performance measures used to compensate executives mainly from the electric, beverage, metallurgic and pension fund industries.