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The Validity of the Economic Value Added Approach: an Empirical Application
Author(s) -
Kyriazis Dimitris,
Anastassis Christos
Publication year - 2007
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2006.00286.x
Subject(s) - economic value added , market value added , net income , earnings before interest and taxes , economics , econometrics , explanatory power , stock exchange , accounting information system , shareholder value , profit (economics) , stock market , value (mathematics) , market value , shareholder , context (archaeology) , accounting , microeconomics , statistics , finance , mathematics , paleontology , corporate governance , philosophy , epistemology , biology
This study investigates the relative explanatory power of the Economic Value Added (EVA) model with respect to stock returns and firms' market value, compared to established accounting variables (e.g. net income, operating income), in the context of a small European developing market, namely the Athens Stock Exchange, in its first market‐wide application of the EVA measure. Relative information content tests reveal that net and operating income appear to be more value relevant than EVA. Additionally, incremental information tests suggest that EVA unique components add only marginally to the information content of accounting profit. Moreover, EVA does not appear to have a stronger correlation with firms' Market Value Added than the other variables, suggesting that – for our Greek dataset – EVA, even though useful as a performance evaluation tool, need not necessarily be more correlated with shareholder's value than established accounting variables.