Does Eva Beat Earnings? Evidence on Associations with Stock Returns and Firm Values

43 Pages Posted: 12 Jun 2002

See all articles by Gary C. Biddle

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics; Columbia Business School; HKU Business School; London Business School

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

James S. Wallace

Claremont Colleges - Peter F. Drucker Graduate School of Management

Date Written: February 1998

Abstract

This study tests assertions that Economic Value Added (EVA) is more highly associated with stock returns and firm values than accrual earnings, and evaluates which components of EVA, if any, contribute to these associations. Relative information content tests reveal earnings to be more highly associated with returns and firm values than EVA, residual income, or cash flow from operations. Incremental tests suggest that EVA components add only marginally to information content beyond earnings. Considered together, these results do not support claims that EVA dominates earnings in relative information content, and suggest rather that earnings generally outperforms EVA.

Note: This paper was previously titled, "Evidence on the Relative and Incremental Information Content of EVA, Residual Income, Earnings and Operating Cash Flow".

Keywords: Value-relevance, relative information content, incremental information content, firm market value, economic value added, EVA, residual income, economic profits, earnings, cash from operations, charge for capital

JEL Classification: M41, G14

Suggested Citation

Biddle, Gary C. and Bowen, Robert M. and Wallace, James S., Does Eva Beat Earnings? Evidence on Associations with Stock Returns and Firm Values (February 1998). Journal of Accounting & Economics (JAE), 1997, Available at SSRN: https://ssrn.com/abstract=2948 or http://dx.doi.org/10.2139/ssrn.2948

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics ( email )

Level 8, Dept of Accounting
198 Berkeley Street, Carlton
Melbourne, Victoria 3010 3010
Australia
61-3-8344-9807 (Phone)
61-3-9349-2397 (Fax)

HOME PAGE: http://https://findanexpert.unimelb.edu.au/profile/774767-gary-biddle

Columbia Business School ( email )

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New York, NY 10027
United States

HKU Business School ( email )

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London Business School ( email )

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Robert M. Bowen (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
206.334.0911 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/robert-bowen

University of Washington - Foster School of Business ( email )

Box 353226
University of Washington
Seattle, WA 98195-3226
United States
206.334.0911 (Phone)

HOME PAGE: http://foster.uw.edu/faculty-research/directory/robert-bowen/

James S. Wallace

Claremont Colleges - Peter F. Drucker Graduate School of Management ( email )

The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States
(909) 607-6063 (Phone)

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