Economic value - accounting value nexus: –the effect of accounting measures on economic value added amongst the Kenyan commercial banks.

Abstract

The study is an empirical investigation on the relationship between Economic Value and Accounting Value among commercial banks in Kenya as a basis of company value. Accounting information has always been critical to investors. However economic value added has gained prominence as an appropriate approach to company value. This study is based on a survey research which entailed a target population of 43 commercial banks in Kenya with a sample population of 30 commercial banks. Secondary data used was obtained from published reports of the Nairobi Securities Exchange (NSE), Central Bank of Kenya (CBK) and published financial statements of the sampled commercial banks. The period of study was between 2008 and 2012 with 150 observations. A regression analysis was used to explore the relationship between the Economic Value and the Accounting Value measures for the Kenyan commercial banks. The econometric results reveal that both Return on Assets and Earnings per Share have a significant positive relationship on Economic Value. On the other hand, the findings show an inverse relationship between Returns on Equity and Economic Value. There is however positive correlation amongst the accounting value measures with an exception of Return on Equity and Earning per Share which illustrate negative correlation between them. The study results therefore suggest that as Kenyan commercial banks consider accounting value measures as a basis of their worth, it is critical that they embrace economic value measurement criteria with a critical examination of corporate governance issues which should take cognizance of the best international practices given that it has a bearing on the management of critical macroeconomic parameters that affect company performance.