Is economic value added more associated with stock return than accounting earnings? The UK evidence

Ahmad Ismail

International Journal of Managerial Finance, 2006, vol. 2, issue 4, 343-353

Abstract: Purpose - The paper seeks to examine the claim of EVA®advocates of its superiority as a financial metric compared with other measures. Design/methodology/approach - The paper uses a sample of 2,252 firm‐year observations from the UK market and applies panel data regressions to test the relative information content of EVA and other accounting measures and the incremental information content of EVA components in explaining stock return. Findings - It is found that net operating profit after tax and net income outperform EVA and residual income in explaining stock return; it was also found that accruals and operating cash flow have significant incremental information content, while the accounting adjustments of EVA proponents have significantly less contribution in explaining stock return. Yet the paper concludes that other variables must be considered in order to capture the unexplained variation in stock return models. Research limitations/implications - Future research should include US and UK data in the same sample and examine whether the conclusions are maintained. Originality/value - For a set of cross‐sectional time series data, ordinary least square (OLS) regressions produce biased results and inaccurate estimates of the parameters coefficients; however, this paper applies panel data regressions.

Keywords: Economic value added; Income; Stock returns (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:17439130610705526

DOI: 10.1108/17439130610705526

Access Statistics for this article

International Journal of Managerial Finance is currently edited by Dr Alfred Yawson

More articles in International Journal of Managerial Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().