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The purpose of this paper is to examine the relative and incremental information content of a cash recovery‐based measure of performance, the estimated internal rate of return, vs an earnings‐based measure of performance, return on assets, in explaining firms' economic performance.

The paper uses the cash recovery rate that is based on continuous time analysis and U‐shaped cash flows to derive the estimated internal rate of return and compare it to return on assets. A cross‐sectional sample was used over a short interval (year 1993 and year 2005) and a time‐series sample (1993‐2005) to empirically examine the relative and incremental information content of the competing measures. Tobin's q and stock returns are used as performance benchmarks.

The results of the empirical tests indicate that the estimated internal rate of return provides better relative and incremental information content over earnings‐based measures of performance. Specifically, the empirical evidence shows that the estimated internal rate of return is consistently positively related to Tobin's q and stock returns over all measurement intervals.

These results imply that earnings‐based performance measures are less value relevant compared to cash recovery‐based measures. There are some limitations that may apply to this study. First, the systematic measurement error in estimating the cash recovery rate may not be independent of the measurement error in the estimated internal rate of return. Second, the performance benchmarks used in the study are not free from problems. Particularly, the return on assets is influenced by firms' rate of growth and the Tobin's q is not a perfect measure of business performance. Therefore, one avenue of future research is to assess the usefulness of financial accounting data for analysts forecast. Moreover, future research may also examine the role of institutional changes in financial reporting and its effect on the quality of earnings and economic performance.

This paper presents extended research on cash recovery‐based vs earnings‐based metrics as proxies for economic return using improved research designs, larger samples and new sensitivity analyses.

This study implements inflation adjustments, as proposed by International Accounting Standard 15 (IAS15), to determine an inflation‐adjusted version of Economic Value Added (EVA). The relationships between the nominal (EVAnom) and inflation‐adjusted (EVAreal) versions of EVA, and market‐adjusted share returns are investigated, and compared with those of residual income, earnings and operating cash flow. Relative information content tests suggest that earnings have the strongest relationship with share returns, while the results of the incremental tests indicate that the EVAnom and EVAreal components do not provide statistically significant information content beyond that provided by residual income.

This study tests the hypothesis of market integration between the securitised and the unsecuritised real estate market by examining the information contents of their respective ex‐post conditional volatility measures. The two markets are said to be integrated if the conditional volatility terms of one market do not contain incremental information for the ex‐post conditional volatility of another market. Our empirical results showed no evidence of the ex‐post returns of the direct real estate (PPI) market incorporating the market volatility of the securitized real estate asset. The ex‐post conditional volatility of the PPI market, which contains only information on the past shock and the past conditional volatility, is sufficient to statistically explain the variation in the log‐PPI price variations. However, there was significant evidence of incremental information flowing from conditional volatility of the unsecuritized property market to the securitized property market. Therefore, the securtized and unsecuritized real estate markets are integrated, but the integration is only uni‐directional. Some degree of segmentation is still observed as the information of property market (PPI) still has significant impacts on the returns of the property stock market.

The main objective of this study is to examine the claim of economic value added (EVA) proponents about its superiority as a financial performance measure compared to five traditional performance measures, i.e. net operating profit after tax (NOPAT), cash flow from operations (OCF), earnings per share (EPS), return on capital employed (ROCE) and return on equity (ROE) in Indian manufacturing sector, and simultaneously provide its empirical evidences. To achieve this, relative and incremental information content of various performance measures and their relationship with market value added (MVA) is tested and examined.

Principal component analysis (PCA) is one of the important multivariate methods utilized in business research for data reduction, latent variable modeling, multicollinearity resolution, etc. The present sample consists of 608 firm‐year observations from the Indian manufacturing sector for the period 2000‐2007. Firstly, principal component analysis (PCA) is employed to determine the important variables that explain market value. Secondly, alongside PCA, multiple regression models (OLS) are used to examine the relative and incremental information content of EVA and traditional performance measures.

These results about PCA reveal that variables like NOPAT, OCF, ROE, ROCE and EVA have maximum influence on the market value (MVA) of the sample companies, whereas EPS has a negative loading, so, EPS is discarded for further analysis. Further, the PCA loading matrix reveals that NOPAT, OCF, ROE and ROCE outscore EVA. The regression results regarding the relative information content test reveal that NOAPT and OCF outperform EVA in explaining the market value of Indian companies. The incremental information content test shows that EVA makes a marginal contribution to information content beyond NOPAT, OCF, ROCE and ROE. Overall, these empirical results about Indian companies do not support the Stern Stewart hypothesis that EVA is superior to traditional accounting‐based measures in association with market value of the firm.

The study concludes that along with financial variables, other non‐financial variables such as employees, product quality, etc., should be considered in order to capture the unexplained variation in the market value of Indian companies.

Explains that Canada is currently deciding whether to harmonize with US or international accounting standards and whether to allow Canadian SEC registrants to file their financial statements using US standards, outlines previous research on the information content of US/Canadian differences and tests the relative and incremental information content of 156 interlisted firms 1996‐1998. Explains the methodology and presents the results, which suggest that there is little difference in the relative information content of the two sets of standards although each provides information incremental to the other. Concludes that investors will not be harmed either by harmonization or by allowing financial reporting under US standards.

Recent studies on the securities market’s differential pricing of earnings components have shown that cash flow from operations is more highly valued than total accruals and that moderate cash flow from operations has higher valuation than extreme total accruals. An interesting question that follows is whether these findings hold regarding the differential valuations of cash flow and current accruals. This study aims to extend prior research by addressing this issue in two ways. First, the authors examine the incremental information content of cash flow from operations beyond working capital from operations. Second, the authors assess the effect of extreme working capital from operations on the incremental information content of cash flow from operations. This study aims to extend prior research by addressing this issue in two ways.

This study adopts market-based accounting research to test its hypotheses and to achieve its objectives. Specifically, this study uses statistical associations between accounting data and stock returns to examine the incremental information content (value relevance) of cash flow and working capital from operations and the effect of extreme working capital from operations on the incremental information content of cash flow.

The results show that cash flow from operations is not more highly valued than current accruals (both being valued equivalently). However, moderate cash flow from operations has higher valuation than extreme current accruals (each is valued differently). Overall, these research findings indicate that cash flow becomes more important for valuation as accruals get “extreme”.

As accruals are unlikely to persist to be permanent across the years, these results can be interpreted as indicating that cash flow and accruals information are used jointly by investors, with one being more important than the other depending on the relative “extremeness” of each. Therefore, both are of value to the investor and both should be reported.

The paper contributes to the UK research on determining the preferred level of disaggregation of earnings components, i.e. operating cash flow, current accruals and non-current accruals. This would help investors to improve their investment and credit decisions.

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.

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.

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.

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.

In contrast to recent US studies, almost all prior UK studies have not supported the incremental information content of cash flow beyond earnings. In addition, to date no UK study has addressed the effect of earnings extremity on the incremental information content of cash flow and earnings whilst controlling for the extremity of cash flow. Therefore, and in order to assess the generality of recent US findings, the aim of this study is to examine the incremental information content of cash flow from operations and earnings and the effect of extreme earnings on the incremental information content of cash flow from operations in the UK firms.

Based on market‐based accounting research, this study uses statistical associations between accounting data (earnings and cash flow) and stock returns to assess/measure the incremental information content (value relevance) of cash flow and earnings and the effect of extreme earnings on the incremental information content of cash flow and earnings. The paper follows the recent methodology in this area that employs the level and change of cash flow and earnings as an estimation of their unexpected components and isolates the extreme cash flow and earnings apart from the moderate ones.

The results show that both earnings and cash flow from operations have incremental information content beyond each other. It is also found that extreme earnings lead to incremental information content for only moderate (not extreme) cash flow. These results are consistent with the findings of the recent US studies.

Overall, the findings of this study support the usefulness of using cash flow information, in addition to earnings in firm valuation by investors in the UK market, especially when earnings are extreme and cash flow is moderate. The accounting interpretation of these results, in terms of disclosure of earnings components, is discussed.

The study makes the following contributions to the incremental information content of cash flow and earnings literature in the UK. First, this study employs actual cash flow data derived from cash flow statements. Second, none of the prior UK studies shares the current research focus, which is to examine the effect of earnings extremity on the incremental information content of cash flow and earnings whilst controlling for the extremity of cash flow itself. Third, this study employs a large sample size for a more recent period.

The main aim of this paper is to examine the claim that economic value added (EVA) advocates its superiority over the traditional accounting-based financial performance measures, i.e. profit after tax (PAT), earnings per share (EPS), return on assets (ROA), return on equity (ROE) and return on investment (ROI) in the Indian manufacturing sector and at the same time, give empirical facts. It also tests and examines the information content of various performance measures and their relationship with stock returns.

The paper uses the sample of 534 Indian manufacturing companies from the Bombay Stock Exchange (BSE) during the period 2000–2018. Multiple regression models are applied to examine the information content of EVA and traditional performance measures in explaining shareholders’ returns.

Relative information content tests revealed that traditional accounting-based measures such as EPS, ROE and ROA performed better than EVA in explaining the returns of Indian manufacturing companies. Incremental information content of EVA adds little contribution to information content above traditional performance measures. The claim of superiority of EVA over accounting-based measures in association with shareholder returns is proved invalid in Indian manufacturing companies.

This study concludes that EVA has no superiority over traditional accounting-based financial performance measures in explaining stock returns of Indian manufacturing companies. To achieve heftiness in outcomes, panel data are tested by using Breusch–Pagan–Godfrey (BPG) test for heteroskedasticity, Hausman’s test for fixed and random effect, variance inflation factor (VIF) test for multicollinearity and Durbin–Watson test for autocorrelation.

The paper seeks to examine the claim of EVA^® advocates of its superiority as a financial metric compared with other measures.

The paper uses a sample of 2,252 firm‐year observations from the UK market and applies panel data regressions to test the relative information content of EVA and other accounting measures and the incremental information content of EVA components in explaining stock return.

It is found that net operating profit after tax and net income outperform EVA and residual income in explaining stock return; it was also found that accruals and operating cash flow have significant incremental information content, while the accounting adjustments of EVA proponents have significantly less contribution in explaining stock return. Yet the paper concludes that other variables must be considered in order to capture the unexplained variation in stock return models.

Future research should include US and UK data in the same sample and examine whether the conclusions are maintained.

For a set of cross‐sectional time series data, ordinary least square (OLS) regressions produce biased results and inaccurate estimates of the parameters coefficients; however, this paper applies panel data regressions.