The aim of this study is to explore the relationship between Economic Value Added (EVA) and stock return in Sri Lanka. The study sample consists of 1695 firm year observations covering 113 public limited companies listed in Colombo Stock Exchange (CSE) for 15 years period from 1999 to 2013. This study was based on secondary data, collected from the CSE data library and the published financial statements of companies considered in the sample. Pearson Correlation Coefficient analysis and the fixed effect model of Panel data Regression analysis techniques were used as the statistical techniques to analyze data. The statistical analysis revealed that there is no significant positive relationship between EVA and stock return in Sri Lanka. Contrary to the arguments of EVA proponents, the researcher suggests the market participants of Colombo Stock Exchange to select other performance measures instead of EVA to make rational economic decisions.
The value relevance of accounting information is an important area in accounting researches. However the literature provides contradictory conclusions on the value relevance of accounting information in different stock exchanges and there is a very limited knowledge in this regard in Sri Lankan context. Hence this study endeavored to investigate the value relevance of accounting information in explain stock returns considering three traditional accounting performance measures: Earnings Per Share (EPS), Return on Equity (ROE) and Return on Investment (ROI) as the proxy for accounting information. The study was conducted with the hypothesis that the traditional accounting performance measures are significant in explaining stock returns in Sri Lanka. A sample of 1695 firm year observations were used for the study covering 113 companies in Colombo Stock Exchange for fifteen years period from 1999 to 2013. This study used Easton and Harris (1991) formal valuation model. Panel data regression analysis technique was applied to test the relative information content of each performance measure to identify the best performance measure which could explain the stock returns in Sri Lanka. The study revealed that the EPS and ROI are significant performance measures and the EPS is the best performance measure which could explain the significant variations of stock returns in Sri Lanka. The results suggest that the market participants in the Colombo Stock Exchange should pay more attention on EPS and ROI. Meantime they must consider other determinants to develop their investment strategies.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.