Significance and Relevance of Salient Management Accounting Parameters in the Context of Global Financial Crisis : Focus on Economies of India and China

The paper empirically examines whether profitable corporates (positive earnings after tax) are also creating value for shareholders measured by EVA (economic value added), particularly in view of the global financial crisis of 2008. In addition, a comparison between India and China, the contemporary and hottest Asian investment destinations, is undertaken to comprehend the responses of the two countries in managing the financial crisis.More than 85 per cent of firms across the period under study (2003-16) have been found to be profitable; yet, on an average more than one third of Indian (minimum 5per cent and maximum 74 per cent) and Chinese (minimum 10 per cent and maximum 76 per cent) profitable firms generate negative EVA. The impact of financial crisis gauged through EVA and ROCE (return on capital employed) is estimated through paired sample t-tests performed on 260 Indian and 254 Chinese firms. The Indian firms report a growth in mean EVA vis-à-vis decline in mean ROCE post the crisis period (2010-16). Further examination indicates that the growth in EVA is because of downtrend in opportunity cost of equity following decline in market returns. Contrarily, Chinese firms register growth on both these measures during that period, successfully bucking the impact of financial crisis. Since China is a highly export oriented economy, our assessment is that such a performance is more because of earnings management and less on the corporate efficiency. Clearly, EVA depicts a more credible picture of the firm's performance, as it not only captures the unsystematic, but also the systematic risks, not estimated by conventional profitability measures