Does Eva Beat Earnings? Evidence on Associations with Stock Returns and Firm Values
43 Pages Posted: 12 Jun 2002
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: Suggested Citation
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