ECONOMIC VALUE ADDITION IMPLICATIONS: A STUDY OF THE PAKISTANI BANKING INDUSTRY

Human beings are mostly concerned about value addition in almost every aspect of life. Does this reality prove accurate in secondary markets investment? This empirical study deals with the Economic Value Addition of major seventeen banks of Pakistan including national and public limited banks. In this research, ROE, ROCE, and OCF are taken as parameters of profitability while marketability parameters are PE and MB ratio. Two sample t-tests show that a new banks value creation is more in comparison with old banks in the context of EVA. Private and Government bank are not significantly different in EVA. Fixed effect modeling and Cluster estimation infer that Profitability parameters positively impact EVA. Marketability parameter MB positively impacts EVA while PE ratio is statistically insignificant. Correlation analysis shows that investors of the banking sector in Pakistan do not pay special attention to EVA in their investment decisions.