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

Read this article. You must be able to explain how market value added (MVA) is an element of shareholder value.

4. Results and Analysis

4.1 Test of Relationship among the Variables Used in the Study

Table 2. Correlation Matrix

		EVA	OL	FL	TL	MVA
EVA	Pearson correlation	1
	Sig. (2 - tailed)
	N	6
OL	Pearson correlation	-0.428	1
	Sig. (2 - tailed)	0.635
	N	6	6
FL	Pearson correlation	-0.409	0.928**	1
	Sig. <2 - tailed)	0.427	0.008
	N	6	6	6
TL	Pearson correlation	-0.407	0.951**	0.992**	1
	Sig. (2 - tailed)	0.423	0.004	0.000
	N	6	6	6	6
MV A	Pearson correlation	-0.275	0.006	-0.205	-0.172	1
	Sig. (2 - tailed)	0.598	0.991	0.697	0.744
	N	6	6	6	6	6
Note**, Correlation is significant at the 0.01 level (2 - tailed). EVA= Economic Value Added; OL= Operating Leverage; FL= Financial Leverage; TL= Total Leverage; MVA= Market Value Added.

Table 2 exemplifies the existence of statistically insignificant relationship among the predictor variables (EVA, OL, FL, and TL) and MVA. Hence H| and H2 both are rejected implies that there is no significant relationship between EVA and MVA and TL and MVA. The R value for the association between EVA and MVA was found to be negative and statistically insignificant. The findings of the correlation analysis are in line with the findings of the study conducted by the person named Fernandez (2003) by using a sample of 582 American companies over the period of 1983 to 1997 in order to test the cause-effect relationship between EVA and MVA. The association between EVA and MVA was found to be negative for 210 sample firms, the findings reveal.