IDEAS home Printed from https://ideas.repec.org/a/bla/jacrfn/v12y1999i2p92-96.html
   My bibliography  Save this article

Eva And Its Critics

Author

Listed:
  • Stephen F. O'Byrne

Abstract

This paper responds to the article by Biddle, Bowen, and Wallace (BBW) by suggesting that their study of EVA and earnings has three potential shortcomings: 1 A closer look at BBW's regression analysis suggests that investors, while apparently ignoring the cost of equity, put great weight on the cost of debt—a puzzling result in need of an explanation. 2 The attempt by BBW to “level the playing field” effectively makes the NOPAT model into a NOPAT and capital model. Thus, it is really an EVA model in disguise and offers no insight into the explanatory power of NOPAT or earnings by itself. 3 BBW's model of expectations is too simple. The ability of EVA to explain shareholder returns depends upon the accuracy of the model of expected EVA performance, and BBW make no attempt to derive a model of expected EVA improvement from the EVA valuation equation.

Suggested Citation

  • Stephen F. O'Byrne, 1999. "Eva And Its Critics," Journal of Applied Corporate Finance, Morgan Stanley, vol. 12(2), pages 92-96, June.
    • Handle: RePEc:bla:jacrfn:v:12:y:1999:i:2:p:92-96
    DOI: 10.1111/j.1745-6622.1999.tb00010.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1745-6622.1999.tb00010.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1745-6622.1999.tb00010.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jacrfn:v:12:y:1999:i:2:p:92-96. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1078-1196 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.