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Verifying of Information Content of Economic Value Added EVA in the Food-processing Sector of the Czech Republic

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  • Gabriela Chmelíková
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    This paper is devoted to today's very popular performance measure - Economic Value Added (EVA). The aim of this article is to investigate the relationship between Economic Value Added, traditional performance measures (ROA and ROE) and ability of creation of shareholder wealth for food-processing firms in the Czech Republic. The intent of this article is fulfilled by providing a simple regression tests of the hypothesis, that between EVA and traditional performance metrics there is not a tight linear dependency which would point out that EVA has the same information content as traditional performance measures and hypothesis, that the EVA measure is more associated with improved shareholder wealth than traditional performance measures. The results of regression analysis indicate in all cases a positive correspondence between EVA and financial performance metrics with very low dependency of EVA on the financial metrics and show higher quality information content of EVA indicator in the relationship to the ability of shareholder wealth creation than traditional performance measures. This fact supports the tested hypothesis as well as the conclusions of corporate finance theory, that from the theoretical point of view EVA is seen as a superior performance metric.

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    Article provided by University of Economics, Prague in its journal Acta Oeconomica Pragensia.

    Volume (Year): 2008 (2008)
    Issue (Month): 5 ()
    Pages: 32-46

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    Handle: RePEc:prg:jnlaop:v:2008:y:2008:i:5:id:160:p:32-46
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    1. Glenn D. Feltham & Grant E. Issac & Chima Mbagwu & Ganesh Vaidyanathan, 2004. "Perhaps Eva Does Beat Earnings-Revisiting Previous Evidence," Journal of Applied Corporate Finance, Morgan Stanley, vol. 16(1), pages 83-88.
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