Association of EVA and accounting earnings with market value: evidence from India

Abstract

Purpose

The purpose of this paper is to examine the claim of economic value added (EVA) proponents about its superiority as a corporate financial performance measure, compared to traditional performance measures in non‐financial Indian companies and provide empirical evidences.

Design/methodology/approach

The paper uses a sample of 873 firms‐year observations from the Indian market and applies pooled ordinary least square regression to test the relative and incremental information content of EVA and other accounting‐based measures in explaining the market value added.

Findings

The results about relative information content test reveal that NOAPT and OCF outperform EVA in explaining the market value of Indian companies. Incremental information content test shows that EVA makes a marginal contribution to information content beyond traditional performance measures such as NOPAT, OCF, EPS and RONW, etc. Overall the authors' results do not support the hypothesis that EVA is superior to traditional accounting‐based measures in association with market value of the firm.

Originality/value

The authors conclude that non‐financial variables such employees, product quality and community satisfaction should be considered in order to capture the unexplained variation in the market value of the firm.

Citation

Kumar, S. and Sharma, A.K. (2011), "Association of EVA and accounting earnings with market value: evidence from India", Asia-Pacific Journal of Business Administration, Vol. 3 No. 2, pp. 83-96. https://doi.org/10.1108/17574321111169795