Influence of traditional performance indicators on economic added value: Evidence from insurance companies

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Abstract

This research aims to explore the impact of profitability indicators (including return on equity, gross profit margin, operating profit margin, and return on investments) on EVA of equity-owned Jordanian insurance companies. Economic value added (EVA) is an innovative approach to measuring company performance and gives a more realistic view of the company’s current finances compared to traditional performance indicators (Subedi & Farazmand, 2020). Many traditional indicators of performance that have been used by the companies could not provide an objective assessment that differentiates between return and capital (Siniak & Lozanoska, 2019). EVA is used to calculate the true economic profit of a company (Pernamasari, 2020). All companies that have complete annual reports from 2006 to 2019 were included in this study (n = 13). The multiple and simple regression analysis to answer the questions of the problem and test the hypotheses of the study was applied. This study found an impact of profitability indicators on the EVA. Therefore, it is necessary to draw the attention of investors and the Amman Stock Exchange to the EVA, as it is a more effective and comprehensive indicator than the traditional ones when it comes to evaluating the company’s financial performance, as it reflects useful and adequate information.

Keywords: Influence of Traditional Performance, Economic Value-Added, Insurance Companies

Authors’ individual contribution: Conceptualization — A.R.A.; Methodology — A.R.A.; Formal Analysis — A.R.A.; Writing — Review & Editing — A.R.A., G.E., and E.I.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M2, G52, L1

Received: 03.04.2022
Accepted: 16.09.2022
Published online: 20.09.2022

How to cite this paper: Alshehadeh, A. R., Elrefae, G., & Injadat, E. (2022). Influence of traditional performance indicators on economic added value: Evidence from insurance companies. Corporate Governance and Organizational Behavior Review, 6(4), 18–27. https://doi.org/10.22495/cgobrv6i4p2