Does EVA Have More Information Content with Stock Return than Profitability Ratios? Evidence from Malaysia

Iranian Journal of Accounting, Auditing and Finance

مقاله 1، دوره 2، شماره 3، آبان 2018، صفحه 1-16   

نوع مقاله: Finance

شناسه دیجیتال (DOI): 10.22067/ijaaf.v3i1.68163

نویسنده

Habibollah Nakhaei^*

Islamic Azad University

چکیده

The purpose of this study is to provide an answer to the claim made by Stern Stewart & company that EVA is a superiority metric than traditional accounting measures in explaining stock return of a firm. This study was expressed to test the relative and incremental information content of EVA and profitability ratios like return on assets (ROA), return on equity (ROE), and return on sales (ROS). It covers 395 non-financial companies listed in the main market of Bursa Malaysia from 2006 to 2015. For empirically testing the hypotheses, panel data regression was used. Our finding did not support the claim of EVA proponents of its superiority upon profitability ratios. The relative information content test revealed that profitability ratios namely ROA, ROE, and ROS outperform EVA in their relationship with stock return. Furthermore, the incremental information content test also indicated that EVA has minimal incremental information content with stock return compared to ROA, ROE, and ROS. In summary, the findings exhibited that EVA is a valuable performance measure in Malaysian context. Therefore, it is recommended to Malaysian firms for using EVA with profitability ratios in firm’s performance evaluation.

کلیدواژه‌ها

Economic value added؛ accounting measures' stock return؛ relative and incremental information content

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