Does EVA ® beat earnings? Evidence on associations with stock returns and firm values

Does EVA ® beat earnings? Evidence on associations with stock returns and firm values 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Does EVA ® beat earnings? Evidence on associations with stock returns and firm values

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Publisher
Elsevier
Copyright
Copyright © 1997 Elsevier Science B.V.
ISSN
0165-4101
DOI
10.1016/S0165-4101(98)00010-X
Publisher site
See Article on Publisher Site

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.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 31, 1997

References

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