The relationship between economic value added and stock market performance: A theoretical analysis

Stephen Keef and Melvin L. Roush
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Melvin L. Roush: Faculty of Commerce and Administration, Victoria University of Wellington, P.O. Box 600, Wellington, New Zealand. E-mail: Melvin.Roush@vuw.ac.nz, Postal: Faculty of Commerce and Administration, Victoria University of Wellington, P.O. Box 600, Wellington, New Zealand. E-mail: Melvin.Roush@vuw.ac.nz

Agribusiness, 2003, vol. 19, issue 2, 245-253

Abstract: Recently in this journal, Turvey et al. (2000, p. 415) report that “… there is absolutely no relationship between EVA and stock market performance” with their sample of Canadian agribusiness firms. We examine the implied relation by invoking a set of perfect market assumptions that are not radically out of kilter with a semistrong form efficient market. We use a simple project as the focus of the analysis. We initially explore the way that the market value of the project evolves over time. We then effect a similar analysis on the project's economic profit. The latter is the theoretical construct underlying EVA. A comparison of these two time series argues that Turvey et al.'s (2000) result is not unexpected from a theoretical perspective. Notwithstanding, we offer brief suggestions as to why executives adopt EVA as a measure of financial performance. [EconLit citations: D81, G30, M41.] © 2003 Wiley Periodicals, Inc. Agribusiness 19: 245-253, 2003.

Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:wly:agribz:v:19:y:2003:i:2:p:245-253

DOI: 10.1002/agr.10049

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