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The relationship between economic value added and the stock market performance of agribusiness firms

Author

Listed:
  • Calum G. Turvey

    (Department of Agricultural Economics and Business, University of Guelph, Guelph, Ontario, Canada N1G 2W1)

  • Linda Lake

    (Fiscal Planning Branch, Ontario Ministry of Finance, 4th Floor, Frost Building South, 7 Queen's Park Crescent, Toronto, Ontario, Canada M7A 1Y7)

  • Erna van Duren

    (Department of Agricultural Economics and Business, University of Guelph, Guelph, Ontario, Canada N1G 2W1)

  • David Sparling

    (Department of Agricultural Economics and Business, University of Guelph, Guelph, Ontario, Canada N1G 2W1)

Abstract

This article examines the relationship between economic value added (EVA) and the stock market performance of 17 publicly traded companies in the Canadian food processing sector. The research is motivated by the increased popularity of EVA in corporate finance and by the claims that high EVA causes incremental gains in share price values. Using1996 annual reports to compute EVA, and daily stock prices for 1994 through 1998, we attempt to correlate EVA with a variety of measures including accounting return on assets (ROA), return on equity (ROE), share price, the Capital Asset Pricing Model (CAPM) returns and risk, and others. Results find little support for the conjecture that high-EVA firms lead to higher shareholder value, however, because the management logic that has popularized EVA is so logical and fundamental to common practices in corporate finance that we resist dismissing EVA as a valued paradigm. Rather, we suggest that market volatility and other factors mask the short-run increments to shareholder wealth from EVA-implemented strategies. [EconLit citations: G30, Q13.] © 2000 John Wiley & Sons, Inc.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:agribz:v:16:y:2000:i:4:p:399-416
    DOI: 10.1002/1520-6297(200023)16:4<399::AID-AGR2>3.0.CO;2-9
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    Citations

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    Cited by:

    1. 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.
    2. Oksana Melnyk, 2019. "Financial Innovation for Assessing the Enterprise Capitalization," Oblik i finansi, Institute of Accounting and Finance, issue 3, pages 95-99, September.
    3. Ibendahl, Gregory A. & Fleming, Ronald A., 2003. "Using Economic Value Added (Eva) To Examine Farm Businesses," 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama 35145, Southern Agricultural Economics Association.
    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. 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.
    6. 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.
    7. Sandeep Goel, 2015. "EVA as an Indicator of Shareholders' Value Creation," Oblik i finansi, Institute of Accounting and Finance, issue 1, pages 66-70, March.
    8. Erna van Duren & David Sparling & Calum Turvey & Linda Lake, 2003. "An assessment of the strategies and strengths of medium-sized food processors," Agribusiness, John Wiley & Sons, Ltd., vol. 19(1), pages 115-132.
    9. 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.
    10. 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.
    11. 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.

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