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The relationship between economic value added and stock market performance: A theoretical analysis

Author

Listed:
  • Stephen P. Keef

    (Faculty of Commerce and Administration, Victoria University of Wellington, P.O. Box 600, Wellington, New Zealand. E-mail: Stephen.Keef@vuw.ac.nz)

  • Melvin L. Roush

    (Faculty of Commerce and Administration, Victoria University of Wellington, P.O. Box 600, Wellington, New Zealand. E-mail: Melvin.Roush@vuw.ac.nz)

Abstract

Recently in this journal, Turvey et al. (2000, p. 415) report that “… there is absolutely no relationship between EVA and stock market performance” with their sample of Canadian agribusiness firms. We examine the implied relation by invoking a set of perfect market assumptions that are not radically out of kilter with a semistrong form efficient market. We use a simple project as the focus of the analysis. We initially explore the way that the market value of the project evolves over time. We then effect a similar analysis on the project's economic profit. The latter is the theoretical construct underlying EVA. A comparison of these two time series argues that Turvey et al.'s (2000) result is not unexpected from a theoretical perspective. Notwithstanding, we offer brief suggestions as to why executives adopt EVA as a measure of financial performance. [EconLit citations: D81, G30, M41.] © 2003 Wiley Periodicals, Inc. Agribusiness 19: 245-253, 2003.

Suggested Citation

  • Stephen P. Keef & Melvin L. Roush, 2003. "The relationship between economic value added and stock market performance: A theoretical analysis," Agribusiness, John Wiley & Sons, Ltd., vol. 19(2), pages 245-253.
    • Handle: RePEc:wly:agribz:v:19:y:2003:i:2:p:245-253
    DOI: 10.1002/agr.10049
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    References listed on IDEAS

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    1. Calum G. Turvey & Linda Lake & Erna van Duren & David Sparling, 2000. "The relationship between economic value added and the stock market performance of agribusiness firms," Agribusiness, John Wiley & Sons, Ltd., vol. 16(4), pages 399-416.
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    Cited by:

    1. Cucagna, Maria Emilia & Goldsmith, Peter D., 2018. "Value Adding in the Agri-Food Value Chain," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 21(3), February.
    2. David Sparling & Calum G. Turvey, 2003. "Further thoughts on the relationship between economic value added and stock market performance," Agribusiness, John Wiley & Sons, Ltd., vol. 19(2), pages 255-267.
    3. Athanasios Mandilas & Iordanis Floropoulos & Michalis Pipiliagkopoulos & George Angelakis, 2009. "EVA Reconsidered for the Greek Capital Market," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 37-54.

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