3.Review of Literature 3-12-2012

8/13/2019 3.Review of Literature 3-12-2012

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Review of Related Literature

3.1 Literature Review on Conceptulisation of Value Added

3.2 Literature Review on conceptulisation of Value Added Statement (VAS)

3.3 Literature Review on Usefulness of Value Added Statement (VAS)

3. Literature Review on VAS as a tool of !erformance "valuation

3.# Literature Review on "conomic Value Added ("VA)

3.$ Literature Review on %ar&et Value Added (%VA)

3.' Literature Review on Relationsip etween "VA and %VA

3.* Summar+


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A literature review is desi,ned to identif+ related researc- to set te

current researc proect witin a conceptual and teoretical conte/t. 0t is

,enerall+ carried out to &now aout te e/istin, practices and to fasten teresearc process. Under tis ac&drop- te present capter covers an overview of

Value Added Accountin, and Reportin,. or te purpose an e/tensive surve+ was

made on literature availale on te suect and found more tan 1# articles-

oo&s and researc reports pulised on te suect since 1#. 4e researc

pulised concentrated mainl+ on te

Conceptulisation of Value Added

Conceptulisation of Value Added Statement (VAS)-

Usefulness of Value Added Statement (VAS)-

VAS as a tool of !erformance "valuation-

"conomic Value Added ("VA)-

%ar&et Value Added (%VA)- and

Relationsip etween "VA and %VA

3.1 Literature Review on Conceptulisation of Value Added

Morely, (19'*)1defined Value added is te value- wic te entit+ as

added in a period tat e5uals its sales less ou,t6in6,oods and services (). 0n

terms of e5uation it ma+ e e/pressed as follows7

Value added 8 Sales 9 :ou,t6in6,oods and services.

ICAI, (19!)2defines Value added is te increase in mar&et value rou,t

1%icael . %orle+- ;4e Value Added Statement in :ritain


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aout + an alteration in te form- location or availailit+ of a product or service

e/cludin, te cost of ou,t6in6materials and services. 4is can e e/pressed in

te followin, e5uation7

Value added 8 Value after alteration 9 Value efore alteration

"rown and#oward (199$)3- te value added can e measured as te sales

value less te cost of ou,t6in6,oods and services used in producin, tose sales.

Van %taden ($&&&',Value added as een defined as te value created +

te activities of a firm and its emplo+ees> i.e. sales less te cost of ou,t6in6

,oods and services.

L. %tain)an* ($&&9) stated tat- Value added is te surplus of sales revenueplus oter incomes from ,oods and services over te cost of ou,t6in6,oods and

services from outside.

Ru++les!is of te view tat- ;te value added + a firm- i.e. te value

created + te activities of te firm and its emplo+ees alone- can e measured +

te difference etween te mar&et value of te ,oods tat ave een turned out

+ te firm and te cost of tose ,oods and materials purcased from oter firms.

Annual %urvey of Industries (A%I'descried value added as tat part of te

value of te products wic is created in te factor+ and is computed +

deductin, from te ,ross e/6factor+ value of output- te ,ross value of input. 4e

terms ?te ,ross e/6factor+ value of output@ and ?te ,ross value of input@

correspond wit tose of ?te mar&et value of ,oods tat ave een turned out@

and ?te cost of tose ,oods and materials purcased from oter firm@

2lossar+ of te 0nstitute of Cartered Accountants of 0ndia- Sept. 1*3.

3:rown- =.L. and Boward L.R7 %ana,erial Accountin, inance- London7 4e "n,lis Lan,ua,e :oo&

Societ+- 1*2- p. *1.

4 Van Staden- C.=. (2)- Revisitin, te Value Added Statement7 4o !ulis or Dot to !ulis in

!roceedin,s of te 12tAsian pacific Conference on 0nternational Accountin, 0ssues- Ectoer.

5Ru,,les- R7 Dational 0ncome and 0ncome Anal+sis- Dew For&- %craw Bill :oo& Co.- 1- p.$

$Annual Surve+ of 0ndustries- C.S.E.- 1$$- Vol 0- p. /viii


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respectivel+. 4us in accountin,- value added is te e/cess of ?output@ over

?input@. %atematicall+ it can e e/pressed as follows7

Value Added (VA) 8 (ross e/6factor+ value of output) 9

(ross value of 0nput)

Gere-

Eutput 8 (a,,re,ate value of products H wor& done for customers H Sales

value of ,oods sold in te same condition as ou,t I stoc& of semi6

finised ,oods)

0nput 8 ross value of materials- fuel etc- wor& done + oter concerns for

te firm- non6industrial service ou,t- depreciation and purcase valueof ,oods sold in te same condition as ou,t.

Lewis and -endrill (19' mentioned tat- ;Value added ma+ e

calculated as te difference etween te value of ,oods or services produced +

te team- i.e. sales revenue- less te value of ,oods and services purcased from

outsiders- i.e. te cost of ou,t in materials and services.

/0e epart2ent of Co22erce, United States e/pressed tat- ;Value

Added + manufacturer is calculated + sutractin, te cost of materials-

suppliers and containers- fuel purcased- electric ener,+ and contract wor& from

te total value of sipments. 0n tat it appro/imates te value created in te

process of manufacturer- value added provides te most satisfactor+ measure of

te relative economic importance of ,iven industries in te census of

manufactures.

CIMA ter2inolo+ydefines te term value added as- ;4e increase in te

mar&et value resultin, from an alteration in te form- location or availailit+ of a

7Lewis- Ricard and !endrill Javid7 Advanced inancial Accountin,- London7 !itman !ulisin, Ltd.1*'- p. ##28

Cartered 0nstitute of %ana,ement Accountants- 4e Cartered 0nstitute of %ana,ement

Accountants- 2# edition- p23


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product or service- e/cludin, te cost of ou,t out materials or services


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Value Added Statement ma+ e defined as a statement wic sows te siKe

of te ?value added ca&e@ and ow te ?ca&e@ as een divided amon,st te

various sta&eolders (%i5er, 199)11.

Value Added Statement (VAS) reveals te value added + an enterprisewic it as een ale to ,enerate and its distriution amon, tose contriutin,

to its ,eneration &nown as sta&eolders (ICAI, 19!)12.

Value Added Statement ma+ e defined as te performance of an

or,aniKation to wat e/tent te enterprise as added value durin, a particular

period to te providers of capital- emplo+ees- ,overnment and reinvestment of

te ,rowt and e/pansion (A+arwal, $&&$'13.

Value Added Statement is a report wic sows te amount and te sources

of value added durin, some specified period of time. 0n oter words- it is also

descried as e/tra wealt created + sellin, ,oods and services to te customers.

So it is entitled as ?wealt ,enerated and distriuted@ (Rao, 1999'1.

4e value added statement reports on te calculation of value added and its

application amon, te sta&eolders in te compan+ (V. %taden, $&&&)1#

4us a Value Added Statement is a statement- wic sows te income of

te compan+ as an entit+ and ow tat is divided etween te people wo ave

contriuted to its creation. Gile te income statement reports on te income of

sareolders- te value added statement reports on te income earned + a lar,e

,roup of sta&eolders7 providers of capital plus emplo+ees and te ,overnment.

11 SiKer- =on7 An 0nsi,t into %ana,ement Accountin,- London7 !itman !ulisin, Ltd.- 1'- p.3#

12

0CA0- - lossar+ of terms- !rentice Ball of 0ndia- Dew Jeli- 1*#13A,rawal- R.S.- 22- Value Added Statement6 A etter performance indicator6 A case stud+ of %%4C-

4e %ana,ement Accountant- Jec. 2*- p6*6.

14 !.%. Rao- Value Added Reportin,7 0n 4eor+- !ractice and Researc- Jeep and Jeep !ulications2- !! *$

15Van Staden- C.=. (2)- Revisitin, te Value Added Statement7 4o !ulis or Dot to !ulis in

!roceedin,s of te 12tAsian pacific Conference on 0nternational Accountin, 0ssues, Ectoer.


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Since VAS represents ow te value or wealt created or ,enerated + an entit+ is

sared amon, different sta&eolders- it is si,nificant from te national point of

view. 4erefore- VAS represents a move in a new and different direction for

financial reportin,.

3.3 Literature Review on 6sefulness of Value Added %tate2ent (VA%'

L.7. %tain)an*, (1991)1$in is article ?te value added statement7 does it

add an+ valueM@ %editari Accountanc+ Researc- Vol. 1' 0ss7 2- pp.13' 9 1-

surve+ed te preparers of value added statements and finall+ concluded tat it is

desirale to prepare a value added statement.

C.7. Van %taden, (199)1'N4e usefulness of te value6added statement in

Sout AfricaN- %ana,erial inance- Vol. 2 0ss7 11- pp. 9 #- Reports a surve+ of

representatives of all financial statement user ,roups in Sout Africa to assess

teir use of VASs- teir prolems- possile future uses and te information

needsOdecisions ein, affected. Compares past and present use of VASs- discusses

teir sortcomin,s and concludes tat te+ sould not e pulised in Sout Africa

an+ more.

8ary Mee* %idney 8ray (19'1ar,ued tat value added statements

(VAS) would sow profits in a format tat would e easil+ understood and usale

+ all sta&eolders rater tan ust te sareolders. 4e VAS sows ow value

created + a compan+ is used to pa+ tose sta&eolders wic created te wealt

or value added. %oreover- te+ identified four areas tat would enefit from VAS

reportin,7 measurin, wealt created + te compan+- empasiKin, sta&eolder

interdependence- conditionin, emplo+ee e/pectations of pa+ and prospects- and

16Stainan&- L. 11 .4e value added statement 6 its nature and purpose- % Com 4esis- Universit+ of

Datal- Juran.

1' C.=. van Staden- (1*) N4e usefulness of te value6added statement in Sout AfricaN-%ana,erial inance- Vol. 2 0ss7 11- pp. 9 #

18ar+ %ee& Sidne+ ra+ (1**)- ?4e Value Added Statement7 An innovation for U S companies-Accountin, BoriKons- pp'36*1


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estalisin, productivit+ incentive pro,rams. %easurin, and reportin, wealt

trou, VAS would raise te ,eneral pulic@s awareness of a compan+@s activities-

enefitin, te compan+ and te pulic. 0t is noted tat tou, income received

te most attention- ut are not te most effective wa+ to sow a compan+@s

performance. 4e VAS empasiKes te interdependence of te sta&eolders +

sowin, ow sources of income are paid to emplo+ees- ,overnments- providers of

capital- and te usiness. Mee* and 8ray (199'wrote tat VAS would enefit

emplo+ees + conditionin, teir e/pectations for pa+ and + formin, a asis for

productivit+ incentive pro,rams.

C. R. %ar*ar . C. andi, ($&11)1 in teir stud+ on ?Corporate Social

!erformance trou, Value Added Reportin,7 A case stud+ of Bindustan !etroleumCorporation Ltd@ concluded tat mana,ement of te compan+ as not onl+

improved its profitailit+ ut as also fulfilled its responsiilit+ towards te

societ+ at lar,e + pulisin, VAS.

"rown andRao, ($&&&)2opines tat te Value Added Statement sows te

total wealt created and ow it was distriuted- ta&in, into account te amounts

retained and reinvested in te ,roup for te replacement of assets and

development of operations. 4e value added statement sows te total wealt

created- ow it was distriuted to meet certain oli,ations and reward tose

responsile for its creation- and te portion retained for te continued operation

and e/pansion.

0n addition- a numer of surve+s ave een conducted amon, companies

pulisin, te statement (Mayne, 1999)21. 4ese surve+s found little evidence of

actual use. 4e companies used te statement mostl+ for emplo+ee

19C. R. Sar&ar andDandi- . C. (211)7 Value Added 0ncome7 An Accountin, !oint of View- 0ndian

=ournal of !ulic "nterprise- 0nstitute of !ulic "nterprise Researc- B+deraad.

20 :rown and Rao (2)- Corporate Social !erformance trou, Value Added Reportin,- =ournal ofAccountin, and inance- Volume 1- Dumer 1- %arc- 2

21%a+ne- =. (1)- Addressin, Attriution trou, Contriution Anal+sis7 Usin, !erformance %easures

Sensil+. Ettawa
http://www.academia.edu/315016/Journal_of_Accounting_and_Finance_._Volume_1_Number_1_March_2009http://www.academia.edu/315016/Journal_of_Accounting_and_Finance_._Volume_1_Number_1_March_2009http://www.academia.edu/315016/Journal_of_Accounting_and_Finance_._Volume_1_Number_1_March_2009http://www.academia.edu/315016/Journal_of_Accounting_and_Finance_._Volume_1_Number_1_March_2009


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communication and wa,e ne,otiations. 4e Corporate Report (1'#)

recommended- amon, oter tin,s- a statement of value added sowin, ow te

enefits of te efforts of an enterprise are sared + emplo+ees- providers of

capital- te state- and reinvestment.

Value added (tat is- sales income less materials and services purcased) is

te wealt te reportin, entit+ as een ale to create + its own and its

emplo+eesP efforts (Ria0i:"el*aoui, 1999)22. 4is statement would sow ow value

added as een used to pa+ tose contriutin, to its creation. 0t usefull+

elaorates on te profit and loss account and in time ma+ come to e re,arded as

a preferale wa+ of descriin, performance.

%in0a (193'$3sumits tat te statement of value added provides a useful

measure to elp in ,au,in, performance and activit+. 4e fi,ure of value added

can e a pointer to te net output of te firm> and + relatin, oter &e+ fi,ures

(for e/ample- capital emplo+ed and emplo+ee costs) si,nificant indicators of

performance ma+ e otained.

Gile income statement reports on te income of sareolders- te value

added statement reports on te income earned + a lar,e ,roup of sta&eolders6

providers of capital plus emplo+ees and te ,overnment. VAS reveals te VA + an

enterprise wic it as een ale to ,enerate and its distriution amon, tose

contriutin, to its ,eneration &nown as sta&eolders(ICAI, 19!'$.

4e ,rowt of value added reportin, was elped + trade

union support of te concept. A document produced + one of te trade unions

stated- N4e ederation terefore aims to encoura,e te use of te added value as

a discipline- so tat all mana,ers- wit or witout e/perience of accountin,

22 Riai6:el&aoui- A. 1."arnin,s6Returns Relation versus Det6Value Added6Returns Relation7 4e

Case for a Donlinear Specification- Advances in Quantitative Anal+sis of inance and Accountin,-Vol.- pp1'#61*#.

23Sina- . (1*3)- Value Added 0ncome- :oo& Gorld- Calcutta

24 Ibid


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practices- will appreciate te financial environment witin wic decisions

affectin, manpower are ta&en (Ria0i "el*aoui, 19)2#.

4o te laour movement- te value added report was deemed a ,ood

veicle for information disclosure and a asis for determinin, wa,es and rewardswat is termed value added incentive pa+ment sceme (Rao, $&&&)2$0n addition

to tese uses- Cruns (19$)2'mention its occasional use in te conte/t of te

performance of :ritis industr+- in reformin, compan+6wide profit6sarin,

scemes- and in facilitatin, financial performance anal+sis.

Altou, evidence was found in tis review tat value added information

as ,reater predictive and e/planator+ power tan earnin,s- tese findin,s were

inconclusive.

3. Literature Review on VA% as a tool of -erfor2ance ;valuation

A. %u)ra2aniya2 ". i2alat0asan, ($&1&'$in a stud+ for appraisin,

te performance and ud,in, te productivit+ of A:ADS manufacturin, compan+

listed in Colomo Stoc& "/can,e concluded tat VA fi,ure can e re,arded as te

inde/ of mana,erial performance and te+ would e more sensitive to displa+ te

vivid picture aout te efficienc+ of mana,ement of a firm in a i,l+ comple/

and competitive usiness environment.

L.7. %tain)an*, ($&&9)2in is article N4e value added statement7 does it

add an+ valueMN %editari Accountanc+ Researc- Vol. 1' 0ss7 2- pp.13' 6 1

25 Riai6:el&aoui- A. (1$)- !erformance Results in Value Added Reportin,, Quorum :oo&s- Gestport

2$ Rao- !.%. (2)- ;Value Added Reportin,< in 4eor+ and !ractice of Researc- Jeep and Jeep!ulications- Dew Jeli

27 Cruns- R.!. (1*2)- Added6Value7 4e Roots run Jeep into Colonial and "arl+ America- Accountin,

Bistorian =ournal- fall.

28A. Suramani+am :. Dimalatasan- (21)- 0ndustrial Relation S+stem7 Lessons for :an,ladesand Sri Lan&a from =apanese !erspectives- "conomic Science Series- !etroleum6as Universit+ of!loiesti :ulletin- 3O21

29 iid


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4e value added statement as een voluntaril+ reported + Sout African

companies for man+ +ears despite reservations aout its usefulness. 4e results of

te empirical surve+ indicate tat te maorit+ of te respondents are of te

opinion tat it is desirale to prepare a value added statement- ut tat it is not

used in te maorit+ of companies. 4e article recommends tat te preparation

of te value added statement sould e standardised. Bowever- te disclosure of

an independentl+ prepared value added report ma+ e more useful to all users.

/. C0ristop0er, %. #assan, A. Isla2, (199$)3on a stud+ on NVoluntar+

Reportin, of Value Added Statements in Sin,aporeN- Asian Review of Accountin,-

Vol. 0ss7 1- pp.2# 9 3- oserved tat pulication of VAS is positivel+ related to

firmPs interest covera,e- siKe- and industr+ memersip- of wic te latter twovariales- firm siKe and industr+ memersip- are also found to e si,nificant in

te Australian studies.

"adani and %a*sena (1*)31 in teir stud+ concluded tat since te

corporate sector occupies an important place in te national econom+- tere is an

imperative need to disclose te value added statement.

A firm is an enterprise or decision6ma&in, centre and Accountanc+Ps role in

tis re,ard is to report te results to te various interested parties in wa+s te+

can understand est. %uo


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0n te words of Clar*e (1*)- a firm not ma&in, an+ profits is onl+

considered ?sic&@ ut firm not ma&in, an+ contriution- + creatin, wealt or

value- to te societ+ ma+ e termed as a ?social parasite@. 4e inclusion of value

added statement in te corporate annual report is must in accountin,.

arpi* and "el*aoui (1)33 in teir stud+ estalised tat value added

accountin, information could suppl+ considerale e/planator+ power of mar&et

ris& e+ond tat provided + earnin,s or cas flow measures- especiall+ at te

individual firm level.

Mat0ews -erera (1$)reported tat in Dew ealand ver+ few companies

pulised a VAS as part of teir financial statement. 0n Sout Africa te interest in

value added statements started wit te pulication of te Corporate Report in

1'#. Unli&e te situation in te United in,dom- wen te incidence of

pulication as fallen since 1*- te incidence of Sout Africa companies

pulisin, te value added statement as increased.

Ria0i:"el*aouiand R.. -icur3in teir stud+ in 1 concluded tat value

added information can suppl+ important e/planator+ power of securit+ valuation

e+ond tat provided + earnin,s.

Similarl+ -avli*r and Ria0i:"el*aoui (1)3! in teir stud+ e/amined te

effect of ownersip structure on a value added measure of performance. 4e+

concluded tat wen te concentration of ownersip is low- total return

ma/imiKation as measured + value added is also low and vice6versa.

Ria0i:"el*aoui (1$)3 found tat value added information pulised

concurrentl+ wit earnin,s does ave additive information content. 0n te same

33arpi&- !. :el&aouiP- A. 1- 4e Relative Relationsip etween S+stematic Ris& and Value AddedVariales- =ournal of 0nternational inancial %ana,ement and Accountin,- Vol.3 pp.2#62'$

34Riai6:el&aoui- A. !icur- R.J. 1."/plainin, %ar&et Returns7 "arnin,s versus Value Added Jata-

%ana,erial inance- Vol.2 Do.-pp.6##

35 Riai6:el&aoui- A. !avli&r- 1."/plainin, %ar&et Returns7 "arnin,s Versus Value Added Jata-

%ana,erial inance- Vol.2 Do.- pp.6##.

36 Riai6:el&aoui- A. 1$.!eiformance Results in Value Added Reportin,- Quorum :oo&s- Gestport-Connecticut


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+ear e also found tat value added6returns relationsips offered etter

e/planator+ power tan te earnin,s6return relationsips- wen te relationsips

were e/pressed + a non6linear conve/6concave function.

"ao and"ao(1$)3

e/amined te time series properties of value added aswell as prediction accurac+ of te value added series.

%0a*untala2oni (1'*) made a stud+ wic was underta&en wit te

oective of anal+sin, trends in value and distriution of value added in selected

te/tiles mills- composite mills and 11 spinnin, mills was selected for te stud+.

4e stud+ as concluded tat all te 1# te/tile mills- under tis stud+- ave

improved teir net value added. Bowever- te factors influencin, te level of net

value added ave not een covered in tis stud+.

"urritt and Clar*e (1*)3reported tat te Australian approac to value

added ad een ver+ cautious- sowin, notin, li&e te initial Keal in :ritain. A

few companies pulised value added statement as a re,ular supplement to te

traditional accounts.

e+eswara Rao (23)39 in is stud+ made an attempt to evaluate te

performance of pulic enterprises + appl+in, te value added approac. Bis stud+as covered all te production enterprises in te pulic sector in 0ndia. 4e main

findin, of te stud+ is tat te contriution in terms of value added + pulic

enterprises is massive and social surplus ,enerated is more in te case of

petroleum industries.

0n a researc stud+ %u)0as0 C0ander, (199)&made an attempt to &now

te practices adopted + te pulic and private sector enterprises in 0ndia

37 :ao- :. :ao- J. 1$- 4e 4ime Series :eavior and !redictive6Ailit+ Results of Annual ValueAdded Jata. =ournal of :usiness inance Accountin,- April 1$- pp.6$

38:urritt- R.L. and . Clar&e- (1*)- wat are te prospects for corporate value added statements in

AustraliaM 4e Cartered Accountant in Australia %a+ 1*- 3$63.

39Rao- Da,eswar 23- Jisclosure !ractices of Value Added Statements in !ulic "nterprises- 4e

%ana,ement Accountant- %arc 2$- p633.

40 Suas Cander- (1*)- ?Corporate Reportin, !ractices in 0ndia@ Jeep and Jeep !ulications- DewJeli pp3#'6#*


14/24

re,ardin, te disclosure of value added statement in teir annual reports. 4is

stud+ covered 1 companies (# from pulic sector and # from private sector for

te +ears 1*# 9*'). 0t as revealed tat onl+ 1' companies- from pulic sector

and * from private sector- disclosed tis statement in teir annual reports. 4is

stud+ as estalised tat value added concept is definitel+ an improvement over

te traditional profit and loss concept in te sense tat it puts te efforts of

different interested ,roups in an or,aniKation into a proper perspective.

"0attac0aryya, (1991'1 in is stud+ made an attempt to evaluate te

leadin, issues and controversies in respect of value added concept. 4is stud+ as

concluded tat te contriutors of capital ave released a part of retained

earnin,s one of value for developin, industrial estates and for e/tendin, realenefits to teir laour forces as it confirms arl %ar/@s contention of Surplus

Value.

%0ar2a(11) in a stud+ made an attempt to evaluate te performance of

4ata 4ea Limited + appl+in, te value added concept. 4e value added

statements of 4ata 4ea Limited as sown an increase in value added from Rupees

#31.*2 la&s durin, 1*39* to Rs. '#$2. la&s durin, 1*'9 **. 4is stud+ as

pointed out tat enterprise- not ma&in, profit sall ecome sic& ut not

,eneratin, value added ma+ die over a period of time.

Moni,(1991) in is stud+ made an attempt to populariKe te four wa+s i.e.-

price increase- product development and diversification- increasin, sales and cost

reduction- + wic manufacturin, companies can increase added value. 4e

stud+ as revealed tat added value is a etter indicator of te performance of a

compan+ tan te sales turnover. 4is stud+ as concluded tat te creation of

added value (i.e. wealt creation) sould e te fundamental oective of an+

compan+ ecause added is te &e+ to te success.

41 :attacar++a- S (11)-Value Added Concept of 0ncome7 return needed for corporate ,rowt-

Cartered Secretar+- =an .11


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%0an*araia0, (1991) in is stud+ estalised te si,nificance of value

added concept as a tool for corporate performance appraisal since it elps te

mana,ement to assess te performance of te compan+- to compare and anal+Ke

te ,rowt of te compan+ and enale tem to identif+ te factors tat are to e

controlled to improve te performance.

8anesan (199)$made an attempt to measure value + 11 spinnin, mills in

4amil Dadu in order to assess teir performance. 4is stud+ as revealed tat

added value is a etter indicator of te performance of mill tan te net profit.

4is stud+ as concluded tat it as laid foundation for full6fled,ed development

of concept of value added and for effective corporate reportin,.

%0an*araia0, (1999' in is stud+ estalised te si,nificance of value

added concept as a tool for corporate performance appraisal since it elps te

mana,ement to assess te performance of te compan+- to compare and anal+Ke

te ,rowt of te compan+ and enale tem to identif+ te factors tat are to e

controlled to improve te performance.

%0ar2a A+arwal, (1991'in teir stud+ made an attempt to evaluate te

performance of nine State Road 4ransport Corporations of 0ndia in te perspective

of value added concept. 4is stud+ as concluded tat te State Road 4ransport

Corporation is contriutin, muc to te societ+ trou, te ,eneration of

emplo+ment and ta/es. 4e ustification for te e/istence of State Road 4ransport

Corporations was found on its capacit+ to ,enerate surplus alon, wit te value

added. 4e stud+ as estalised tat te value added concept is a i,l+ useful

metod to evaluate te operational efficienc+ of tese transport corporations.

4e researc of "urc0ell et.al (1*#)3 indicated tat te incidence of

pulication reaced a clima/ in 1*- ut started declinin, after tat. 0n U..-

42anesan- S.- (1)- Jeterminants of value added- =ournal of accountin,- Vol. #* April- pp. 161.

43:urcell S.- Clu C.- Bopwood A.. (1*#)7 Accountin, in its social conte/t7 towards a istor+ of

value added in te United in,dom. Accountin,- Er,aniKations and Societ+- 17 3*113.


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tere were- terefore- definite trend towards and awa+ from te pulication of

value added statement.

Van %taden ($&&3' is of t0e opinion t0at %out0 Africa is at present

e=periencin+ t0e 0i+0est incidence of pu)lication of t0e value added state2ent

reported anyw0ere in t0e world to date. In addition researc0 investi+atin+ t0e

predictive a)ility of value added infor2ation 0as )een conducted in t0e 6%A

since 199&, even t0ou+0 t0e value added state2ent 0as not )een pu)lis0ed

t0ere. /0e researc0 reported in 0is paper sets out to esta)lis0 w0et0er t0e

value added state2ent is a disclosure wort0 considerin+ )y co2panies around

t0e world, )y investi+atin+ t0e %out0 African e=perience wit0 t0e value added

state2ent.

0n 0ndia- a lar,e numer of companies are preparin, Value Added

Statements (VAS) wit a view to disclose te income under te social perspective.

4e companies- wic are preparin, tis statement- are not onl+ interested to

e/iit te income from te sareolder@s point of view ut also interested to

e/iit te income under social conte/t. 4is welcome can,e in te attitude of

te corporate sector as made tis sector an inte,ral part of te societ+.

Bowever- in 0ndia- ver+ few researc studies ave een underta&en on te value

added concept.

3.# Literature Review on "conomic Value Added ("VA)

0n tis section a review of earlier literature in te area of "conomic Value

Added is presented. En reviewin, te articles pulised in ot forei,n and 0ndian

ournals on te suect matter> it was oserved tat tere are ver+ few studies

amon, tese researc wor&s wic ave een done teoreticall+ and also

empiricall+ in 0ndia. Bowever- te summar+ of te articles pulised in te

ournals- varied views- opinions and commands pertainin, to teor+ and empirical

44 Van Staden C.=. (23)7 4e relevance of teories of political econom+ to te understandin, of

financial reportin, in Sout Africa7 te case of value added statements. Accountin, orum- 277 2292
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102778http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102778http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=102778


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wor& of te concepts of "conomic Value Added ("VA) ave een summariKed in a

cronolo,icall+ as under7

%tern (199&'!oserved tat "VA as a performance measure captures te

true economic profit of an or,aniKation. "VA6ased financial mana,ement andincentive compensation sceme ,ives mana,er etter 5ualit+ information and

superior motivation to ma&e decisions tat will create te ma/imum sareolders@

wealt in an or,aniKation. "VA is a performance measure wic is most closel+

lin&ed to te creation of sareolders@ wealt over a period of time.

%tewart (199'as e/pended tat "VA is a powerful new mana,ement

tool tat as ,ained worldwide reco,nition as te standard tool of corporate

performance. "VA presents an inte,rated framewor& of financial mana,ement and

incentive compensation.

8rant (199'found tat te "VA concept ma+ ave everlastin,l+ can,ed

te wa+ real profitailit+ is measured. A surve+ was conducted tat e/amines te

empirical relations etween "VA and corporate valuation. Results su,,est tat "VA

si,nificantl+ an,s te %ar&et Value Added of a firm and tat tis wealt effect

stems from te compan+@s residual return on capital.

Ra


18/24

;t0ira< (199'9derived tat in 0ndian mar&et man+ companies are usin,

capital inefficientl+ and tus destro+in, value. 4e tool to measure capital

efficac+ and economic value is economic value added. 4a&in, "VA as a tool of

financial performance BLL and 04C stand at te top of te list. Also important is

te relation etween "VA and total operatin, capital emplo+ed. 4is would sow

ow muc value te compan+ as ,enerated in relation to te assets it as

deplo+ed. 0t is ar,ued tat stoc& price move up as a compan+ adopts "VA as an

internal performance criterion.

%a=ena (199'!& elucidated tat tere is no one metod of measurin,

financial performance tat is totall+ perfect. 4us a measure sould e suc tat

satisfies sareolders@ e/pectations and is also ein, committed + topmana,ement. "VA is a measure tat sould e used + top mana,ement to

evaluate investment center mana,ers- ecause it considers ,oal con,ruence

etween sareolders and mana,ers.

"aner


19/24

8urudas ($&&&'!3 e/amines te different wa+s in wic it can e

ascertained weter te value of a sare is ein, enanced or not. Be starts +

loo&in, at te sift from "arnin, per Sare- !rice earnin,s Ratio- etc. to "conomic

Value Added and %ar&et Value Added. Be demonstrates ow "VA is te est

measure for deducin, sareolder value enancement.

"aner


20/24

(%VA). As per Stewart@s (11) claim- "VA is te ultimate pro/+ of %VA. Several

studies e/amined te relationsip etween "VA and %VA and %ost of tem found

evidence to support Stewart@s claim.

Jespite te popularit+ of te concept- ver+ few studies ave eenunderta&en to empiricall+ test te ailit+ of "VA to reflect or pro/+ te %VA of

0ndian companies. 4us e ma&es in is stud+ an attempt to fill te ,ap and

empiricall+ e/amines te relationsip etween %VA and "VA of te 0ndian

companies. inall+ e indicates tat tere is no stron, evidence to support tat

"VA is superior to te traditional performance measures in its association wit

%VA

3. Literature Review on Mar*et Value Added (MVA'

ARM 7oi)ary2, ($&1$'!is of opinion t0at Mar*et Value Added (MVA' is

t0e difference )etween t0e 2ar*et value of an enterprise and t0e capital

contri)uted )y s0are0olders and investors. 8reater Mar*et Value Added (MVA'

0i+0li+0ts t0at t0e enterprise 0as added 2ore value t0an w0at was contri)uted

)y t0e s0are0olders and investors, w0ile a ne+ative Mar*et Value Added (MVA'

displays t0at t0e enterprise destroys value. In fact, a ne+ative Mar*et Value

Added (MVA' reveals t0at t0e value of 2ana+e2ent actions and invest2ent are

lower t0an t0e value of t0e contri)ution to t0e co2pany )y t0e capital 2ar*et.

Mar*et Value Added (MVA' is a tool to 2easure s0are0older4s value at a

particular 2o2ent t0at was introduced )y %tewart in 1991. Mar*et Value

Added (MVA' is t0e additional 2ar*et capitali5ation over and a)ove t0e )oo*

value of e>uity (8upta ? undu, $&&'!9. @ro2 an investor4s point of view, MVA

is t0e )est final 2easure of a co2pany4s perfor2ance.

58 AR% =oiar+m- (212) %ar&et !erformance %easurement Ef :an,alore Stoc& "/can,e- =ournal ofRadi/ 0nternational "ducational and Researc Consortium- Vol.1 Sept 212 pp '

59upta- A. and undu- J. (2*)- "nancin, profitailit+ and sareolder value trou, mer,er 9 A

case stud+ of 0C0C0 :an&- Vid+asa,ar Universit+ =ournal of Commerce- %ar- Vol. 13


21/24

%tewart (1991'&states t0at MVA is a cu2ulative 2easure of corporate

perfor2ance and t0at it represents t0e stoc* 2ar*et4s assess2ent fro2 a

particular ti2e onwards of t0e net present value of all a co2pany4s past and

pro


22/24

6ye2ura, antor and-etit (199'3used a sample of te 1 lar,est USA

an&s for te period etween 1*$ to 1#.4e+ calculated te %VA and tested

te correlation wit "VA as well as four oter accountin, measures- namel+ net

income (D0)- "arnin,s per Sare ("!S)- Return on "5uit+ (RE")- and Return on

Assets (REA). 4e results of teir researc indicated tat tere is a stron, relation

etween "VA and %VA. 4e correlations etween tese performance measures and

%VA are7 "VA T- REA 13T- RE" 1T- D0 *T and "!S $T.

Milunovic0 and /suei (199'displa+ed tat %VA is stron,l+ correlated

wit "VA tan wit C- C ,rowt- "!S- "!S ,rowt- and RE".

@ernande5 ($&&1' !studied te correlation etween "VA and %VA of #*2

American companies for te period 1*36'. 0t was sown tat for 2$ firms in te

sample te can,es in te DE!A4 ad i,er correlation wit can,es in %VA tan

te "VA- wile for 21 sample firms te correlation etween "VA and %VA was

ne,ative.

i2, A0n, and Bun ($&&' otained direct stron, positive correlation

etween "VA and %VA from ot tests of te parametric and nonparametric.

!erformance indicators cosen in te stud+ usin, mar&et value added (%VA) as a

pro/+ for sareolder value of companies listed on te =S" Securities "/can,e

Sout Africa did not support superiorit+ of "VA. 4e findin,s su,,ested stron,er

relationsips etween %VA and cas flow from operations. 4e stud+ also found

ver+ little correlation etween %VA and "VA.

6319 U+emura- J..- antor- C.C.- and !etit- =.%. (1$)- "VA for :an&s7 Value creation- Ris&

%ana,ement and !rofitailit+ %easurement. =ournal of Applied Corporate inance 6 :an& Am = ApplCorp inance - Vol. - Do. 2- pp. 61

642 %ilunovic- S.- A. 4suei- (1$)- "VA in te Computer 0ndustr+- =ournal of Applied Corporate

inance- vol. - Do. 2- pp. 1611#

6521ernandeK- !. (21)- Sareolder value creators and sareolder value destro+er in U.S.A7 +ear

2. SSRD "6 =ournal- wor&in, paper- Do.2'22#2- JE07 1.213Ossrn.2'22#2

66im- =on =.- An- =ae6B+eon- Fun- =. . (2). "conomic value added ("VA) as a pro/+ for

mar&et value added (%VA) and accountin, earnin,7 empirical evidence from te usiness c+cle.American academ+ of accountin, finance (!. 161$)


23/24

#er2anu (2')$'in is tesis e/amined relationsip etween "VA- %VA and

SiKes of a compan+ and its sare price performance 1# 6 2$ in 0ndonesia. 4e

result of te anal+sis sowed tere is no relationsip etween "VA- %VA and SiKes

of a compan+.

3. %u22ary

0t is oserved tat tere are various concepts and tecni5ues of measurin,

te value added and tus it is necessar+ to develop a standard practice for its

measurement- so tat te performance of different enterprises ma+ e ud,ed in

a meanin,ful wa+ and inter6firm as well as intra6firm comparison ma+ e possile.

A Value Added Statement is a statement- wic sows te income of te

compan+ as an entit+ and ow tat is divided etween te people wo ave

contriuted to its creation. Gile te income statement reports on te income of

sareolders- te value added statement reports on te income earned + a lar,e

,roup of sta&eolders7 providers of capital plus emplo+ees and te ,overnment.

Since VAS represents ow te value or wealt created or ,enerated + an entit+ is

sared amon, different sta&eolders- it is si,nificant from te national point of

view. 4erefore- VAS represents a move in a new and different direction for

financial reportin,.

Altou, evidence was found in te review tat value added information

as ,reater predictive and e/planator+ power tan earnin,s- tese findin,s were

inconclusive.

0n 0ndia- a lar,e numer of companies are preparin, Value Added

Statements (VAS) wit a view to disclose te income under te social perspective.4e companies- wic are preparin, tis statement- are not onl+ interested to

e/iit te income from te sareolder@s point of view ut also interested to

67Bermanu- iotto. (2'). Anal+sis of "conomic Value Added ("VA)- %ar&et Value Added (%VA)- and

Compan+ SiKe and its relation to compan+ sare price performance of 3 listed companies in =S".Under,raduate tesis- :inus 0nternational Universit+- 2'


24/24

e/iit te income under social conte/t. 4is welcome can,e in te attitude of

te corporate sector as made tis sector an inte,ral part of te societ+.

Bowever- in 0ndia- ver+ few researc studies ave een underta&en on te value

added concept.

Jespite te popularit+ of te concept- ver+ few studies ave een

underta&en to empiricall+ test te ailit+ of "VA to reflect or pro/+ te %VA of

0ndian companies. 4us e ma&es in is stud+ an attempt to fill te ,ap and

empiricall+ e/amines te relationsip etween %VA and "VA of te 0ndian

companies. inall+ e indicates tat tere is no stron, evidence to support tat

"VA is superior to te traditional performance measures in its association wit

%VA.

Documents

3.Review of Literature 3-12-2012