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Market Value Added and Economic Value Added: Some Empirical Evidences

15 Pages Posted: 24 Dec 2005  

D V Ramana

Xavier Institute of Management


The development in the Indian capital market, both in depth and breadth along with the increased awareness among the shareholders, has increased the pressure on the companies to consistently perform better. One of the indicators of such performance is the Market Value Added (MVA). Literature is replete with studies, which have tried to capture the behavior of MVA. Stewart (1991) claims that EVA is the ultimate proxy of MVA. Following Stewart (1991), several studies examined the relationship between EVA and MVA using the Stern Stewart-1000 data. Most of these studies found evidence to support Stewart’s claim.

Despite the popularity of the concept, very few studies have been undertaken to empirically test the ability of EVA to reflect or proxy the MVA of Indian companies. This study makes an attempt to fill the gap.

This study empirically examines the relationship between MVA and EVA of the Indian companies . Though the focus of the paper is the relationship between EVA and MVA, it also tries to understand the relationship between MVA and other common accounting numbers like NOPAT, PAT, PBIT, and CFO

The study indicates that there is no strong evidence to support Stern Stewart’s claim that EVA is superior to the traditional performance measures in its association with MVA.

Keywords: Economic Value Added (EVA), Market Value Added (MVA), Net Operating Profit after Tax (NOPAT), Profit After Tax (PAT), Cash From Operation (CFO)

Suggested Citation

Ramana, D V, Market Value Added and Economic Value Added: Some Empirical Evidences. 8th Capital Markets Conference, Indian Institute of Capital Markets Paper. Available at SSRN: or

D V Ramana (Contact Author)

Xavier Institute of Management ( email )

Bhubaneswar, Orissa

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