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Does EVA beat earnings and cash flow in Japan?

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  • Chikashi Tsuji
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    Abstract

    The objective of this paper is to evaluate the effectiveness of Economic Value Added (EVA), a metric that is increasingly used in Japan as a measure of corporate value. EVA is compared with several other valuation measures including cash flow, operating income, and profit after tax from the viewpoint of both levels and changes. Also two different forms of EVA are examined by using the Weighted Cost of Capital (WACC) from the Capital Asset Pricing Model (CAPM) and the WACC from the Fama-French (1993) model. The results reveal that corporate market values in both levels and changes have stronger linkages with cash flow and other earnings measures than either form of EVA.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 16 (2006)
    Issue (Month): 16 ()
    Pages: 1199-1216

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    Handle: RePEc:taf:apfiec:v:16:y:2006:i:16:p:1199-1216

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    1. Michael Firth, 1998. "IPO profit forecasts and their role in signalling firm value and explaining post-listing returns," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 29-39.
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    8. Samy Ben Naceur & Mohamed Goaied, 2002. "The relationship between dividend policy, financial structure, profitability and firm value," Applied Financial Economics, Taylor & Francis Journals, vol. 12(12), pages 843-849.
    9. Abhay Abhyankar & Keng-Yu Ho & Huainan Zhao, 2005. "Long-run post-merger stock performance of UK acquiring firms: a stochastic dominance perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 15(10), pages 679-690.
    10. Samy Ben Naceur & Mohamed Goaied, 2004. "The value relevance of accounting and financial information: panel data evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 14(17), pages 1219-1224.
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