Residual income and value creation: An investigation into the lost-capital paradigm

Magni, Carlo Alberto

doi:10.1016/j.ejor.2009.03.004

Cited by 14 publications

(11 citation statements)

References 77 publications

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“…These results can be interpreted as a validation of the thesis of the neutrality proposed by Demstez according to which all the structures of property are equivalent. However, the share of the capital held by these investors exerts a positive influence on the value of the Tunisian rated company measured by the ROE at the threshold of 1%; in contrast to the results obtained by Bianco as well as Kang; who have found a negative relationship between the property of the non-institutional investors and the performance of the firm [20,21].…”

Section: Impact Of Non-institutional Investors On the Performance Of contrasting

confidence: 50%

Ownership Structure and Corporate Performance: The Case of Listed Tunisian Firms

Soufeljil¹,

Sghaier²,

Kheireddine³

et al. 2016

J Bus Fin Aff

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Section: Impact Of Non-institutional Investors On the Performance Of contrasting

confidence: 50%

Ownership Structure and Corporate Performance: The Case of Listed Tunisian Firms

Soufeljil¹,

Sghaier²,

Kheireddine³

et al. 2016

J Bus Fin Aff

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“…i t ) is lost by the investors: for this reason, the systemic-value-added theory may also be named the lost capital theory (Magni, 2007a,b). In value-based management, Drukarczyk and Schueler (2000) and Schueler and Krotter (2004) endorse the use of Net Economic Income, which is a market-based lost-capital residual income, while Young and O'Byrne (2001)'s notion of Adjusted EVA turns out to be an accounting-based lost-capital residual income in the case where earnings=dividends (see Magni, 2007a).…”

Section: The Lost-capital Paradigmmentioning

confidence: 99%

“…Since Solomons's (1965) classical book, the notion of residual income has 10 Schueler (2000) and Drukarczyk and Schueler (2000) label it "invested capital", given that it is equal to the difference between market value and NPV (see Schueler, 2001, eq. (1) to be an equivalent notion, if income=cash flows is assumed (see Magni, 2007a). 11 Focussing on one-period investments, Magni (2007d shows that the use of the CAPM for computing the cost of capital makes RI and NPV nonequivalent (see also Magni, 2009, on the use of CAPM and NPV for capital budgeting).…”

Section: Valuation Decision and Managementmentioning

confidence: 99%

“…In first place, it is usually thought that "economists cannot afford to lump together, as 'depreciation', changes in present value caused by the passage of time, and by use" (Scott, 1953, p. 371): on the contrary, a lost-capital approach on RI does enable one to lump together depreciation through time and depreciation through use. In second place, the KEP satisfies (strong and) robust goal congruence: we have Magni, 2007a, sections 8-10).…”

Section: The Forerunners: (A) Keynesmentioning

confidence: 99%

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Splitting up value: A critical review of residual income theories

Magni

2009

European Journal of Operational Research

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This paper deals with the notion of residual income, which may be defined as the surplus profit that residues after a capital charge (opportunity cost) has been covered. While the origins of the notion trace back to the 19th century, in-depth theoretical investigations and widespread real-life applications are relatively recent and concern an interdisciplinary field connecting management accounting, corporate finance and financial mathematics (Peasnell, 1981(Peasnell, , 1982Peccati, 1987Peccati, , 1989Peccati, , 1991Stewart, 1991;Ohlson, 1995; Arnold and Davies, 2000;Young and O'Byrne, 2001;Martin, Petty and Rich, 2003). This paper presents both a historical outline of its birth and development and an overview of the main recent contributions regarding capital budgeting decisions, production and sales decisions, implementation of optimal portfolios, forecasts of asset prices and calculation of intrinsic values. A most recent theory, the systemic-value-added approach (also named lost-capital paradigm), provides a different definition of residual income, consistent with arbitrage theory. Enfolded in Keynes's (1936) notion of user cost and forerun by Pressacco and Stucchi (1997), the theory has been formally introduced in Magni (2000a,b,c;2001a,b;, where its properties are thoroughly investigated as well as its relations with the standard theory; two different lost-capital metrics have been considered, for value-based management purposes, by Drukarczyk and Schueler (2000) and Young and O'Byrne (2001). This work illustrates the main properties of the two theories and their relations, and provides a minimal guide to construction of performance metrics in the two approaches. Running title. A Critical Review of Residual Income TheoriesScientific areas. Corporate finance, management accounting, financial mathematics.

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“…Magni (2009), for instance, performed a comprehensive investigation on capital budgeting decisions, sales and production and decisions, use of optimal portfolios, prediction of asset prices and estimation of intrinsic values. Magni (2010), in another assignment, performed an in depth investigation on residual income and value creation and proposed a new method for measuring residual income. Lin et al (2011) tried to understand whether stock prices of stock-financed acquirers could move in direction of their fundamental value in long term and whether they could correct their initial overvaluation.…”

Section: Introductionmentioning

confidence: 99%

An investigation on relationship between residual income and internal and external performance measures

Daryani¹,

Serkani²

2012

msl

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During the past few years, there have been growing interest in learning the relationship between residual income and other financial figures such as dividend per share, market value and operating cash flow. The proposed study of this paper gathers the financial information of all listed firms traded in Tehran Stock Exchange over the period of 2007-2011. We only concentrate on listed companies whose fiscal years started from March to May of each year. The other criterion associated with the proposed study of this paper is that shares of the selected firms must have been active during period of study and there must be no change in their fiscal calendar. The study does not include the shares of holdings, banks, insurance firms. Finally, the information of the firms must be available for course of study. The study uses two regressions analysis and examines five hypotheses including the relationship between residual income and other factors including dividend per share, value added operating cash flow, value added cash flow, market cap and market value added. Using two regression models, all these hypotheses are investigated and the results of the survey confirm a meaningful relationship between residual income and dividend per share, value added operating cash flow, value added cash flow. However, the results of the second model do not confirm the last two hypotheses.

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Residual income and value creation: An investigation into the lost-capital paradigm

Cited by 14 publications

References 77 publications

Ownership Structure and Corporate Performance: The Case of Listed Tunisian Firms

Ownership Structure and Corporate Performance: The Case of Listed Tunisian Firms

Splitting up value: A critical review of residual income theories

An investigation on relationship between residual income and internal and external performance measures

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