An Interindustry Analysis of Economic Value Added as a Proxy for Market Value Added

Jonathan K. Kramer · Jonathan Peters

71 citations0/0 files storedJournal of applied finance

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Financial Reporting and Valuation Research Corporate Finance and Governance Accounting and Organizational Management

Abstract

Companies worldwide use the financial metric Economic Value Added (EVAR) to help then assess their financial performance. However researchers speculate that EVA is better suited to traditional manufacturing businesses than to knowledge-based businesses. This study empirically rests the relation between capital intensity and EVA's ability to serve as an effective proxy of market value added. We find that EVA is no less at home in the information economy than it is in traditional manufacturing businesses. However, our results do indicate that in most of the industries studied, the marginal costs of using EVA as a proxy for market value added are not justified by any marginal benefits.

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References

1997Does EVA® beat earnings? Evidence on associations with stock returns and firm values

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2010Assessing empirical research on value-based management: Guidelines for improved hypothesis testing 2007Value‐based management, EVA and stock price performance in Canada 2016Economic value added or earnings: What explains market value in Indian firms?2021Does corporate environmental responsibility (CER) affect corporate financial performance? Evidence from the global public construction firms 2003Wealth creation and managerial pay: MVA and EVA as determinants of executive compensation 2011An Investigation of the Economic Performance of Sustainability Reporting Companies Versus Non-reporting Companies: A South African Perspective 2005Market Value Added and Economic Value Added: Some Empirical Evidences 2015The impact of performance measures, leverage and efficiency on market value added: Evidence from Iran

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