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Australian Evidence Concerning the Information Content of Economic Value-Added

Author

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  • Andrew C. Worthington

    (School of Economics and Finance, Queensland University of Technology, GPO Box 2434, Brisbane, QLD 4001.)

  • Tracey West

    (School of Economics and Finance, Queensland University of Technology, GPO Box 2434, Brisbane, QLD 4001.)

Abstract

Pooled time-series, cross-sectional data on 110 Australian companies over the period 1992–1998 is employed to examine whether the trademarked variant of residual income known as economic value-added (EVA®) is more highly associated with stock returns than other commonly-used accounting-based measures. These other measures of internal and external performance include earnings, net cash flow and residual income. Three alternative formulations for pooling data are also employed in the analysis, namely, the common-effects, fixed-effects and random-effects models, with the fixed-effects approach found to be the most empirically appropriate. Relative information content tests reveal returns to be more closely associated with EVA® than residual income, earnings and net cash flow, respectively. An analysis of the components of EVA® confirms that the GAAP-related adjustments most closely associated with EVA® are significant at the margin in explaining stock returns.

Suggested Citation

  • Andrew C. Worthington & Tracey West, 2004. "Australian Evidence Concerning the Information Content of Economic Value-Added," Australian Journal of Management, Australian School of Business, vol. 29(2), pages 201-223, December.
    • Handle: RePEc:sae:ausman:v:29:y:2004:i:2:p:201-223
    DOI: 10.1177/031289620402900204
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    References listed on IDEAS

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    Cited by:

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