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Australian Evidence Concerning the Information Content of Economic Value-Added

Worthington, Andrew C. & West, Tracey (2004) Australian Evidence Concerning the Information Content of Economic Value-Added. Australian Journal of Management, 29(2), pp. 201-224.

Abstract

Pooled time-series, cross-sectional data on 110 Australian companies over the period 1992-1998 is employed to examine whether the trademarked variant of residual income known as economic value-added (EVA®) is more highly associated with stock returns than other commonly-used accounting-based measures. These other measures of internal and external performance include earnings, net cash flow and residual income. Three alternative formulations for pooling data are also employed in the analysis, namely, the common effects, fixed effects and random effects models, with the fixed effects approach found to be the most empirically appropriate. Relative information content tests reveal returns to be more closely associated with EVA® than residual income, earnings and net cash flow, respectively. An analysis of the components of EVA® confirms that the GAAP-related adjustments most closely associated with EVA® are significant at the margin in explaining stock returns.

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ID Code: 2325
Item Type: Journal Article
Additional URLs:
Keywords: VALUE, RELEVANCE, RELATIVE AND INCREMENTAL INFORMATION CONTENT, ECONOMIC, VALUE ADDED, RESIDUAL INCOME
ISSN: 1327-2020
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200) > Banking Finance and Investment not elsewhere classified (150299)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300) > Panel Data Analysis (140304)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2004 Australian Graduate School of Management, UNSW
Copyright Statement: The contents of this journal can be freely accessed online via the journal’s web page (see link).
Deposited On: 31 Oct 2005
Last Modified: 05 Jan 2011 23:25

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