The characteristics of the probability distributions of economic value added and financial accounting ratios for listed companies in Egypt

M.F. Omran

International Journal of Economics and Accounting, 2012, vol. 3, issue 3/4, 227-244

Abstract: The study examines the cross-sectional probability distributions of selected important economic value added and financial accounting ratios for the 50 most actively traded common stocks in Egypt. The results indicate that the distribution of short-term debt and bondholders returns seem to be much less risky than the distribution of shareholders equity returns. This is consistent with economic theory since shareholders are the residual owners of the firm. The two ratios that failed to pass any formal test of normality are total assets turnover and financial leverage. These two ratios are calculated using three accounting variables: one exogenous variable (sales) and two internal variables (total assets and equity). The internal variables are decided by firms' managers and significantly influenced by potential financial analysts' reception. Therefore, these two ratios can benefit from critical approaches to accounting as they may conceal more information than what can be uncovered using statistical analysis.

Keywords: financial accounting ratios; economic value added; fundamental analysis; Egypt; listed companies; probability distribution; stock markets; short-term debt; bondholder returns; shareholder equity returns. (search for similar items in EconPapers)
Date: 2012
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