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The application of EBITDA for performance measurement, and factors influencing it

Helleren, Frode; Stige, Christian Flacké
Master thesis
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Preliminary Thesis.pdf (198.1Kb)
URI
http://hdl.handle.net/11250/2484093
Date
2017
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  • Master of Science [1116]
Abstract
This thesis is based on firm observations from Oslo Børs in the period from 2011

to 2015, and studies the use of EBITDA in the firms’ annual reports and if there

are any factors influencing this use.

We apply the modified Jones model to estimate earnings management through

accruals, and use this to generate a variable for earnings management which we

insert into a multiple linear regression model for measuring the use of EBITDA.

However, we found inconclusive results about earnings management and the use

of EBITDA.

Further, we examine other factors that we expected to have an influence on

EBITDA. We found evidence that firm size and decreasing cash flow were

significantly different from zero at the 1% level (99% confidence interval) and

10% level (90% confidence interval) respectively, suggesting that these variables

do affect the use of EBITDA in the annual reports. The remaining factors did not

provide any evidence towards the use of EBITDA in the annual reports (financial

reporting). However, we assess the tendencies in conjunction with our hypotheses

regarding prior expectations. Furthermore, we see that the different sectors

explain approximately 10% of the total variation in the regression model.

We experience that the use of EBITDA or other pro forma earnings measures vary

between firms but also for a firm from year to year. Further, it is unclear what

EBITDA contains, making it difficult to interpret and compare with other firms’

EBITDA.
Description
Masteroppgave(MSc) in Master of Science in Business, Business law, tax and accounting - Handelshøyskolen BI, 2017
Publisher
BI Norwegian Business School

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