BUS601: Financial Management

This study examined the association between EVA, leverage and MVA of the quoted private Sri Lankan banks. Data of 6 banks over the last 3 years from 2011 to 2013 has been used. Furthermore, Pearson correlation and simple regression methods have been employed in the analysis.

The R values were found to be weak and statistically insignificant for the association between EVA and MVA and leverage and MVA consisting of the R values of -0.275 and -0.172 respectively. Thus there is no clear evidence from the studies to support the claim that the shareholders stand to gain by looking at EVA. Moreover, leverage increases both the risk and reward of the investment. If the investment that is highly leveraged pans out and produces a profit, it will ultimately get reflected in the market value of shares, which in turn will increase MVA. However, if it fails, it would decrease shareholders' wealth. Furthermore, R² values reveal that the predictor variables used in the study have no explanatory power in predicting the changes in MVA. It is an indication that other factors are perhaps found to be better prognosticators of MVA.