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The relationship between economic value added and the stock market performance of agribusiness firms
Author(s) -
Turvey Calum G.,
Lake Linda,
van Duren Erna,
Sparling David
Publication year - 2000
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/1520-6297(200023)16:4<399::aid-agr2>3.0.co;2-9
Subject(s) - economic value added , financial economics , economics , capital asset pricing model , shareholder value , return on equity , market value added , econlit , book value , shareholder , equity (law) , market value , business , finance , profit (economics) , stock exchange , corporate governance , microeconomics , medline , earnings , political science , law
This article examines the relationship between economic value added (EVA) and the stock market performance of 17 publicly traded companies in the Canadian food processing sector. The research is motivated by the increased popularity of EVA in corporate finance and by the claims that high EVA causes incremental gains in share price values. Using1996 annual reports to compute EVA, and daily stock prices for 1994 through 1998, we attempt to correlate EVA with a variety of measures including accounting return on assets (ROA), return on equity (ROE), share price, the Capital Asset Pricing Model (CAPM) returns and risk, and others. Results find little support for the conjecture that high‐EVA firms lead to higher shareholder value, however, because the management logic that has popularized EVA is so logical and fundamental to common practices in corporate finance that we resist dismissing EVA as a valued paradigm. Rather, we suggest that market volatility and other factors mask the short‐run increments to shareholder wealth from EVA‐implemented strategies. [EconLit citations: G30, Q13.] © 2000 John Wiley & Sons, Inc.