Economic value added performances of publicly owned banks: Evidence from Turkey

Abstract

Economic Valued Added (EVA) is a recent financial tool that helps to determine the true shareholder wealth contribution of a bank. Although return on equity (ROE), net profit margin and capital adequacy ratio are widely used as proxies to measure the banking performance, inclusion of a cost of capital employed sets EVA method apart from other popular measures of bank performance. The EVA application in banks is relatively new. It was first implemented in 1994, and it is not as well known as other measures of bank performance. EVA is computed as the difference between net operating profit after taxes (NOPAT) and the cost of capital invested. The purpose of this study is to employ EVA measuremets as a performance indicators for Turkish banks listed in Istanbul Stock Exchange. The data cover the period of 2006-2010. EVA value of each bank per year is computed and ranked. EVA values of banks simply refer economic profits of banks since economic profits creates true value for investors rather than accounting profits. Hence, EVA results and ranking of banks convey critical information for decision makers. © EuroJournals Publishing, Inc. 2011.