Is economic value added more associated with stock return than accounting earnings? The UK evidence

Abstract

Purpose -The paper seeks to examine the claim of EVA w advocates of its superiority as a financial metric compared with other measures. Design/methodology/approach -The paper uses a sample of 2,252 firm-year observations from the UK market and applies panel data regressions to test the relative information content of EVA and other accounting measures and the incremental information content of EVA components in explaining stock return. Findings -It is found that net operating profit after tax and net income outperform EVA and residual income in explaining stock return; it was also found that accruals and operating cash flow have significant incremental information content, while the accounting adjustments of EVA proponents have significantly less contribution in explaining stock return. Yet the paper concludes that other variables must be considered in order to capture the unexplained variation in stock return models. Research limitations/implications -Future research should include US and UK data in the same sample and examine whether the conclusions are maintained. Originality/value -For a set of cross-sectional time series data, ordinary least square (OLS) regressions produce biased results and inaccurate estimates of the parameters coefficients; however, this paper applies panel data regressions.

Indian Banking and Information Content of EVA and Traditional Measures

“…al. (1997), Tong et.al (2009), Dimitris (2007), Ismail (2006), Ralph (2006), Kim (2006), Bao and Bao (1999), Biddle et al, (1999) also arrived at similar conclusion. Dodd and Chen (1997) similarly raised another dimensions of EVA and conclude that Economic value Added has been acclaimed to the most recent and exciting innovation in company performance measures.…”

“…(1997) estimated the relative information content of EBEI, R1, EVA and NCF at 9.04, 6.24, 5.07 and 2.38 percent respectively. Similarly, Ismail (2006), agrees that net operating profit after tax and net income outperform EVA and residual income in explaining stock return…”

Industry-specific determinants of shareholder value creation

“…Studies which found economic-based measures to be more useful rather than accounting-based variables included studies by Stewart (1991Stewart ( , 1994, Stern (1993), Milunovich and Tsuei (1996), O'Byrne (1996), Bacidore et al (1997), Dodd (1997, 2001), Hall (1999), Worthington and West (2004), Chmelikova (2008) and Lee and Kim (2009). By contrast, studies by Biddle et al (1997), Salvaiy (1997), Bao and Bao (1998), De Villiers and Auret (1998), De Wet (2005, Ismail (2006), Maditinos et al (2006Maditinos et al ( , 2009, Kyriazis and Anastassis (2007), Erasmus (2008), Kumar and Sharma (2011), Arabsalehi and Mahmoodi (2012), Abdoli et al (2012), Mollah et al (2012), Hall (2013) and Alloy Niresh and Alfred (2014) found that accounting-based variables performed better in explaining shareholder value creation than economic-based measures. It falls beyond the scope of this study to discuss the results of the abovementioned studies in more detail, but it is important to point out that the inconsistencies of their results may lead managers, investors, shareholders and researchers to ask the following questions:…”

Küresel Finansal Krizin Muhasebe ve Değer Esaslı İşletme Performanslarına Etkisi

“…Ayrıca, literatürde modern ve değer temelli performans değerlemesi konusunda yapılan çalışmaların bazıları ise, EVA ile hisse senedi değeri arasındaki ilişki (Maghuga vd., 2002;Şamiloğlu, 2004a), EVA ve yönetim eylemleri arasındaki ilişki (Wallace, 1997), EVA ve firma değeri (Stewart, 1994), EVA ve hisse senedi getirisi arasında ilişki (Ismail, 2006) ve EVA ile MVA (piyasa katma değeri) arasında anlamlı ilişki olup olmadığına yönelik (Şamiloğlu, 2004b) çalışmalar bulunmaktadır. Bu çalışmada ise finansal kriz döneminde, hem geleneksel muhasebe temelli işletme performansı ve değer temelli işletme performans ölçüsü olan EVA'nın kullanımı birlikte ele alınacaktır.…”