INVESTIGATING SHAREHOLDERS’ ECONOMIC VALUE

Abstract: This paper analyses shareholders’ economic value creation using two major banks; HSBC and Barclays plc of UK within a five-year period (2003-2007). We use both internal and external information such as auditors’ annual financial reports, designed control variables, stock market data, etc to analyse business activities and practices of the banks and how they influence shareholders value on the stock market. We applied both the innovative (EVA) and traditional accounting (ROA and ROE) methods to measure their respective performances, regress it against stock market returns and other control values to understand their explanatory power especially to shareholders’ economic value. Our empirical results were mix: Though both innovative and traditional accounting methods do explain the variations of the stock returns for both HSBC and Barclays, the information content of EVA per equity is superior to the variations of Barclays’ stock market returns whiles return on asset (ROA) provides more explanation power to variations in the stock market returns for HSBC. At the comparative level both banks are creating values but Barclays provides higher average EVA per equity compare to HSBC. However Barclays operates under higher internal volatility which affects it performances measurements including stock market reactions and returns hence HSBC prove to be superior when shareholders measure them on risk-adjusted level.