David Bourget (Western Ontario)
David Chalmers (ANU, NYU)
Rafael De Clercq
Ezio Di Nucci
Jonathan Jenkins Ichikawa
Jack Alan Reynolds
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International Journal of Business Governance and Ethics 2 (s 3-4):237-253 (2006)
This paper investigates the assertions that EVA is more highly associated with shareholder wealth and firm values than are traditional performance measures. Two commonly used value-based performance metrics namely, Total Shareholder Return (TSR) and Tobin's Q were also considered to highlight the value-relevance of EVA vis-a-vis these measures in predicting shareholder wealth. Using a panel sample of about 1000 American firms over the period 1990 2002, the study found compelling evidence consistent with the notion that EVA outperforms other traditional performance measures in explaining shareholder wealth. Value-relevance tests reveal EVA to be more highly associated with shareholder wealth than TSR and Tobin's Q. The incremental value-relevance tests have also suggested that EVA possesses the largest explanatory power over TSR and Tobin's Q. These results conclusively support the claims made by EVA proponents and further support the potential usefulness of EVA metric for internal and external performance measurement.
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