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Perhaps Eva Does Beat Earnings—Revisiting Previous Evidence

Author

Listed:
  • Glenn D. Feltham
  • Grant E. Issac
  • Chima Mbagwu
  • Ganesh Vaidyanathan

Abstract

In two articles, the first published in 1997 in the Journal of Accounting and Economics and the second in 1999 in this journal, Gary Biddle, Robert Bowen, and James Wallace presented evidence that reported earnings are more closely related than EVA to marketadjusted stock returns– in other words, that earnings are more “value relevant” than EVA. These papers, which are among the most widely cited in finance and accounting, fundamentally affected perceptions about the importance of EVA as a measure of corporate performance. The current article addresses a simple question: Do the Biddle, Bowen, and Wallace results continue to hold for a different set of companies, a different time period, and a different market? The authors first examined updated EVA information for different companies in the same time period examined in the Biddle, Bowen, and Wallace study. They then looked at a more recent time period (1995–1999) and a different market (the Canadian stock market), and found in all cases that “EVA has greater power than earnings in explaining marketadjusted stock returns.” Their findings validate the widespread corporate acceptance of EVA as a management tool.

Suggested Citation

  • Glenn D. Feltham & Grant E. Issac & Chima Mbagwu & Ganesh Vaidyanathan, 2004. "Perhaps Eva Does Beat Earnings—Revisiting Previous Evidence," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(1), pages 83-88, January.
    • Handle: RePEc:bla:jacrfn:v:16:y:2004:i:1:p:83-88
    DOI: 10.1111/j.1745-6622.2004.tb00598.x
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    Cited by:

    1. Gabriela Chmelíková, 2008. "Verifying of Information Content of Economic Value Added EVA in the Food-processing Sector of the Czech Republic [Ověření vypovídací schopnosti ukazatele ekonomická přidaná hodnota EVA v odvětví po," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2008(5), pages 32-46.
    2. Gabriela Chmelíková, 2013. "Performance factors of Czech brewing industry companies," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 61(2), pages 353-365.
    3. Oksana Melnyk, 2019. "Financial Innovation for Assessing the Enterprise Capitalization," Oblik i finansi, Institute of Accounting and Finance, issue 3, pages 95-99, September.
    4. Gabriela Chmelíková, 2011. "Framework of performance measurement system for Czech small breweries," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 59(7), pages 167-176.
    5. Yuanzhan Chen & Zhuo Jin & Bo Qin, 2023. "Economic Value Added in performance measurement: A simulation approach and empirical evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 109-140, March.

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