An Empirical Application of the EVA® Framework to Business Cycles

27 Pages Posted: 11 Jul 2015 Last revised: 15 Feb 2020

See all articles by Nicolas Cachanosky

Nicolas Cachanosky

University of Texas at El Paso; American Institute for Economic Research; UCEMA Friedman-Hayek Center for the Study of a Free Society

Peter Lewin

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Date Written: May 20, 2015

Abstract

Following financial concepts like duration and economic value added (EVA®) we estimate the impact of interest rate movements on firms that are more and less roundabout. We find that firms that are more roundabout, that is, work with expected cash-flows with higher duration, are more sensitive to interest rate movements. To the extent that monetary policy is able to move the discount rate used by investors, monetary policy changes the relative present value of any investment project and therefore affects resource allocation. We show evidence that this effect is present in the U.S. in the years prior to the subprime crisis.

Keywords: business cycles, EVA, economic value added, average period of production, roundaboutness

JEL Classification: E32, E43, G00

Suggested Citation

Cachanosky, Nicolas and Lewin, Peter, An Empirical Application of the EVA® Framework to Business Cycles (May 20, 2015). Review of Financial Economics, Vol. 30, 2016, Available at SSRN: https://ssrn.com/abstract=2628912 or http://dx.doi.org/10.2139/ssrn.2628912

Nicolas Cachanosky (Contact Author)

University of Texas at El Paso

500 West University Avenue
El Paso, TX 79968
United States

HOME PAGE: http://https://www.utep.edu/

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

UCEMA Friedman-Hayek Center for the Study of a Free Society ( email )

Buenos Aires
Argentina

Peter Lewin

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

2601 North Floyd Road
P.O. Box 830688
Richardson, TX 75083
United States

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