An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Franco Fiordelisi
University of Rome III

Phil Molyneux
University of Wales Bangor

Abstract: This paper analyses traditional and innovative performance indicators in the light of creating shareholder value within the banking industry. We examine both relative- and incremental-value relevance focussing on quoted European banks between 1996 and 2002. Our results suggest that the Economic Value Added (EVA) measure that accounts for the specifics of banking outperform all other performance measures. In contrast, the standard EVA does not seem to explain better shareholder value creation than a wide range of simple accounting and other performance measures. These results show that it is necessary to accurately consider the peculiar nature of capital in banking as well as other accounting adjustments if accurate measures of bank performance are to be used.

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