EVA as a Financial Metric: the relationship between EVA and Stock Market Performance

Abstract

The present research study investigates the relationship between economic value added (EVA) and the stock market performance of 36 publicly traded companies in India. The study attempted to justify the claim that high EVA causes incremental gains in stock market. The daily stock prices from 2006 through 2012 were taken to study the relationship between EVA and stock market performance of 36 Nifty stocks. EVA of firms were compared with various accounting  and market performance measures like ROA, ROE, ROS, CAPM Return, excess market premium and others. Results of the study find little support to the fact that high-EVA firms lead to higher stock market performance and shareholders’ value creation. The author viewed that stock prices are more sensitive to growth expectation and these expectations are reflected in terms of higher stock returns as per the whim and fancies of the investors rather than the EVA information and strategy.

Keywords: EVA, EVA and Stock Market, EVA & Indian Firms, Value Based Management, Stock Market Performance.