The Usefulness of Economic Value-Added (EVA®) and its Components in the Australian Context
Worthington, Andrew C. & West, Tracey A. (2001) The Usefulness of Economic Value-Added (EVA®) and its Components in the Australian Context. Accounting, Accountability and Performance, 7(1), pp. 73-90.
In this study, pooled time-series, cross-sectional data on 110 Australian companies over the period 1992-1998 is employed to examine whether EVA® is more highly associated with stock returns than conventional accounting-based measures: namely, earnings before extraordinary items, net cash flow from operations and residual income. A related empirical question concerns those components unique to EVA® that help explain these stock returns beyond that explained by other accounting-based measures. The five components of EVA® examined are net cash flows, operating accruals, after-tax interest, and cost of capital and accounting adjustments. Relative information content tests reveal returns to be more closely associated with earnings than residual income, net cash flow and EVA® respectively However, consistent with the construction of EVA®, incremental information content tests suggest that EVA® adds more explanatory power to earnings than either net cash flow or residual income. An analysis of the components of EVA® confirms that the capital charges and GAAP-related accounting adjustments most closely associated with EVA® add more explanatory power to net cash flow than accruals or after-tax interest, though these measures are relatively more significant alone in explaining market returns.
Impact and interest:
Citation countsare sourced monthly fromand citation databases.
These databases contain citations from different subsets of available publications and different time periods and thus the citation count from each is usually different. Some works are not in either database and no count is displayed. Scopus includes citations from articles published in 1996 onwards, and Web of Science® generally from 1980 onwards.
Citations counts from theindexing service can be viewed at the linked Google Scholar™ search.
Full-text downloadsdisplays the total number of times this work’s files (e.g., a PDF) have been downloaded from QUT ePrints as well as the number of downloads in the previous 365 days. The count includes downloads for all files if a work has more than one.
|Item Type:||Journal Article|
|Keywords:||Economic value, added, residual income, cash flow, information content|
|Subjects:||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 > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > Accounting Auditing and Accountability not elsewhere classified (150199)
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School|
|Copyright Owner:||Copyright 2001 Griffith Business School Department of Accounting, Finance & Economics|
|Copyright Statement:||Reproduced in accordance with the copyright policy of the publisher.|
|Deposited On:||21 Nov 2005|
|Last Modified:||05 Jan 2011 23:25|
Repository Staff Only: item control page