Linkages Between Value Based Performance Measurements and Risk Return Trade Off: Theory and Evidence


  • Saban Celik Yasar University, Universite Street, Izmir
  • Banu Esra Aslanertik Dokuz Eylul University, Kaynaklar Campus, Izmir, Turkey.



Asset pricing, risk, Value Added Measures, emerging markets


In this study we attempt to investigate the linkages between value-based performance measurements and risk-return trade off in a way to explain cross sectional asset returns. On the side of value based performance measurements, three groups of variables are used as a sorting factor: traditional measures which consist of accounting based and market based; recently popularized measures such as Economic Value Added and Market Value Added and theoretically sound measures such as foreign investor allocation and firm systematic risk indicators. The goals of the study are (i) to show how value based measurements techniques relate to risk return trade off and (ii) how these measures affect the cross sectional asset returns in manufacturing industry. Empirical results indicate that foreign investor allocation as a sorting factor produces much more meaningful risk return positive linear relation for cross sectional asset returns than traditional and recently popularized measures


Download data is not yet available.


Arnold, G. (1998). Corporate Financial Management. London: Pitman Publishing.

Armitage, H. M., & Fog, V. (1996). Economic Value Creation: What Every Management Accountant

Should Know. CMA Magazine, October, 21-24.

Aslanertik, B. E. (2007). Enabling Integration to Create Value through Process-Based Management

Accounting Systems. International Journal of Value Chain Management, 1(3), 223 – 238.

Bacidore, J. M., Boquist, J. A., Milbourn, T. T., &. Thakor, A.V. (1997). The Search for the Best Financial

Performance Measure. Financial Analysts Journal,53(3) May/June, 11-20.

Biddle, G. C., Bowen, R. M., & Wallace, J. S. (1997). Does Eva Beat Earnings? Evidence on Associations

With Stock Returns and Firm Values. Journal of Accounting and Economics, 24(3), 301-336.

Celik, S., Aktan, B., & Mandaci, P. E. (2008). The Characteristics of Bank Common Stocks within

the Framework of Capital Asset Pricing Model: Evidence from Turkey. Investment Management

and Financial Innovations, 5(4), 157-172.

Celik, S., Mandaci P. E., & Cagli,, E.C. (2009). An Examination of Risk and Return Trade off

in Manufacturing Industry: An Asset Pricing Approach. Middle Eastern Finance and Economics,

(September), 5-27.

Celik, S., Mandaci P. E., Masood, O., & Aktan, B. (2009). The Linkages between Characteristics of Investors

and Stock Returns: An Empirical Inquiry in Istanbul Stock Exchange. Paper presented at 5th

International Conference on Business, Economics and Management, Izmir, Turkey.


Chen, S., & Dodd, J. L. (2001). Operating Income, Residual Income and EVA™: Which Metric is More Value

Relevant? Journal of Managerial Issues, 13(1), 65-86.

Chung, K. H., & Pruitt, S. W. (1994). A Simple Approximation of Tobin’s q. Financial Management, 23(3), 70-74.

Clinton,, B. D., & Chen. S. (1998). Do New performance Measures Measure Up? Management Accounting,

(October), 38, 40-43.

Cochrane, J. H. (2005). Asset Pricing, (Rev. Ed.). New Jersey: Princeton University Press.

Ehrbar, A. (1998). Economic Value Added: The Real Key to Creating Wealth. New York: John Wiley & Sons,


Grant, J. L. (1996). Foundations of EVA for Investment Managers. The Journal of Portfolio Management,

(Fall), 41-48.

Lehn, K., & Makhija, A. K. (1997). EVA, Accounting Profits and CEO Turnover: An Empirical Examination

-1994. Journal of Applied Corporate Finance, 10(2), 90-97.

Lindenberg, E. B., & Ross, S. A. (1981). Tobin q Ratio and Industrial Organization.. Journal of Business, 54(1),


Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios

and Capital Budgets. Review of Economics and Statistics, 47(1), 13-37.

Marsh, D. G. (1999). Making or Breaking Value. New Zealand Management, March, 58-59.

Mehra, R., & Prescott, E. C. (1985) . The Equity Premium: A Puzzle. Journal of Monetary Economics, 15,


Merchant, K., & Sandino, T. (2009). Four Options for Measuring Value Creation. Journal of Accountancy,

August, 34-37.

Modigliani, F., & Miller, M. (1963). Corporate Income Taxes and the Cost of Capital: a Correction. American

Economic Review, 53(3), 433–443.

ISE (2008). Sermaye Piyasası ve Borsa Temel Bilgiler Kılavuzu. 20e, Nisan. Retrieved from>.

Perfect, S. B., & Wiles, K. W. (1994). Alternative Construction of Tobin’s q: An Empirical Comparison. Journal of

Empirical Finance, 1(3/4 July), 313-41.

Peterson, P. P., & Peterson, D. R. (1996). Company Performance and Measures of Value Added. Short

Hills, NJ: The Research Foundation of the Institute of Chartered Financial Analysts.

O’Byrne, S. F.(1996). EVA and Market Value. Journal of Applied Corporate Finance, 9(1 Spring), 116-125.

Rappaport, A. (1986). Creating Shareholder Value. (1st. Ed.). New York: The Free Press.

Rappaport, A. (1998). Creating Shareholder Value. (2nd. Ed.) New York: The Free Press.

Ray, R. (2001). Economic Value Added: Theory, Evidence, a Missing Link. Review of Business, 22(1/2), 66-70.

Ronte, H. (1998). Value based management. Management Accounting: Magazine for Chartered Management

Accountants, 76(1), 38-39.

Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.

Journal of Finance, 19(4), 425-42.

Simms, J. (2001). Marketing for Value. Marketing, 28(June), 34-35.

Stewart, G. B. (1991). The Quest for Value, New York: Harper Business.

Stewart, G. B. (1994). EVA: Fact and Fantasy. Journal of Applied Corporate Finance, 7(2), 71-84.

Uyemura, D. G., Kantor, C. C., & Petit, J. M. (1996). EVA for Banks: Value Creation, Risk Management and

Profitability Measurement. Journal of Applied Corporate Finance, 9(2), 94-111.

Xavier, A., & Pere, V. (2003). FEVA: A Financial and Economic Approach to Valuation. Financial

Analysts Journal, 59(2), 80-87.

Yook, K. C., & McCabe, G. M. (2001). MVA and the Cross-section of Expected Stock Returns. Journal

of Portfolio Management, 27(3), 75-87.

Walbert, L. (1994). The Stern Stewart Performance 1,000: Using EVA to Build Market Value. Journal of

Applied Corporate Finance, 6(4), 109-112




How to Cite

Celik, S. ., & Esra Aslanertik, B. . (2011). Linkages Between Value Based Performance Measurements and Risk Return Trade Off: Theory and Evidence . Journal of Economics, Finance and Administrative Science, 16(31), 63–83.