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Further thoughts on the relationship between economic value added and stock market performance

Author

Listed:
  • David Sparling

    (Department of Agricultural Economics and Business, University of Guelph, Guelph, Ontario, N1G 2W1, Canada. E-mail: dsparling@uoguelph.ca)

  • Calum G. Turvey

    (Department of Agricultural Resource and Food Economics, and, the Food Policy Institute, Rutgers University, New Brunswick, NJ 08901. E-mail: turvey@aesop.rutgers.edu)

Abstract

As authors of a previous study questioning the strength of the relationship between EVA and shareholder value, and in light of the arguments posed by Keefe and Roush, we revisit the relationship between EVA and shareholder return and reexamine the evidence and issues surrounding the use of EVA as a tool for valuing investments. Using the Stern Stewart Fortune 1000 data, we examine two potential relationships for 33 food companies listed in the database. The first is between the absolute level of EVA in 2000 and 3-, 5-, and 10-year shareholder returns. The second is between 3-, 5-, and 10-year mean percentage changes EVA and 3-, 5-, and 10-year shareholder returns. The correlations found were extremely weak in all instances tested. [EconLit citations: 9120, 9320, M410, Q130]. © 2003 Wiley Periodicals, Inc. Agribusiness 19: 255-267, 2003.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:agribz:v:19:y:2003:i:2:p:255-267
    DOI: 10.1002/agr.10054
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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.
    2. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    3. Machuga, Susan M & Pfeiffer, Ray J, Jr & Verma, Kiran, 2002. "Economic Value Added, Future Accounting Earnings, and Financial Analysts' Earnings Per Share Forecasts," Review of Quantitative Finance and Accounting, Springer, vol. 18(1), pages 59-73, January.
    4. Garvey, GT & Milbourn, TT, 2000. "EVA versus earnings: Does it matter which is more highly correlated with stock returns?," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 209-245.
    5. Biddle, Gary C. & Bowen, Robert M. & Wallace, James S., 1997. "Does EVA(R) beat earnings? Evidence on associations with stock returns and firm values," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 301-336, December.
    6. 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.
    7. Jonathan B. Berk & Richard C. Green & Vasant Naik, 1999. "Optimal Investment, Growth Options, and Security Returns," Journal of Finance, American Finance Association, vol. 54(5), pages 1553-1607, October.
    8. Turvey, Calum G., 2002. "Can Hysteresis And Real Options Explain The Farmland Valuation Puzzle?," Working Papers 34131, University of Guelph, Department of Food, Agricultural and Resource Economics.
    9. Robert T. Kleiman, 1999. "Some New Evidence On Eva Companies," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 80-91, June.
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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. Brandon Schaufele & David Sparling, 2011. "Regulation and the financial performance of Canadian agribusinesses," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(2), pages 201-217, August.
    3. Sujata Behera, 2021. "Does EVA valuation model outperform earnings valuation model in explaining market value of equity?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6312-6337, October.

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