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The Validity of the Economic Value Added Approach: an Empirical Application

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  • Dimitris Kyriazis
  • Christos Anastassis

Abstract

"This study investigates the relative explanatory power of the Economic Value Added (EVA) model with respect to stock returns and firms' market value, compared to established accounting variables (e.g. net income, operating income), in the context of a small European developing market, namely the Athens Stock Exchange, in its first market-wide application of the EVA measure. Relative information content tests reveal that net and operating income appear to be more value relevant than EVA. Additionally, incremental information tests suggest that EVA unique components add only marginally to the information content of accounting profit. Moreover, EVA does not appear to have a stronger correlation with firms' Market Value Added than the other variables, suggesting that - for our Greek dataset - EVA, even though useful as a performance evaluation tool, need not necessarily be more correlated with shareholder's value than established accounting variables." Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

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  • Dimitris Kyriazis & Christos Anastassis, 2007. "The Validity of the Economic Value Added Approach: an Empirical Application," European Financial Management, European Financial Management Association, vol. 13(1), pages 71-100.
  • Handle: RePEc:bla:eufman:v:13:y:2007:i:1:p:71-100
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    Cited by:

    1. Rapp, Marc Steffen & Schellong, Daniel A. & Schmidt, Maximilian & Wolff, Michael, 2010. "Considering the shareholder perspective: value-based management systems and stock market performance," CEFS Working Paper Series 2010-09, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    2. Kai Henning Blume, 2016. "Value-based management as a tailor-made management practice? A literature review," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 20(3), pages 553-590, September.
    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.
    4. Fiordelisi, Franco & Molyneux, Phil, 2010. "Total factor productivity and shareholder returns in banking," Omega, Elsevier, vol. 38(5), pages 241-253, October.
    5. Randolph Sloof & Mirjam van Praag, 2008. "The Degradation of Distorted Performance Measures," Tinbergen Institute Discussion Papers 08-072/3, Tinbergen Institute.

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