Aspects of the predictive and explanatory power of value added information in South Africa

Abstract

In this paper the predictive and explanatory power of value added information was investigated with regards to three external indicators by doing statistical analysis on empirical data of South African listed companies. The analysis indicated that value added information did not have significant predictive and explanatory power additional to that of earnings for the three selected external indicators. It also showed that the high inter-correlation between value added and earnings prevented value added from being used in prediction models in combination with earnings. The predictive and explanatory power of value added information therefore seems to be limited.