Business, Management and Accounting
4 years ago

Earnings outperform EVA® in predicting stock returns and firm values.

Journal of Accounting and Economics
Does EVA® beat earnings? Evidence on associations with stock returns and firm values
Gary C. Biddle, Robert M. Bowen, James S. Wallace

Paper Summary

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The study compared Economic Value Added (EVA®) and earnings to see which is better at predicting stock returns and firm values. They found that earnings are more closely linked to returns and firm values than EVA, residual income, or cash flow. The components of EVA only slightly improve predictions beyond earnings. Overall, earnings tend to perform better than EVA in predicting stock returns and firm values.