THE INFORMATION CONTENT OF ECONOMIC VALUE ADDED, RESIDUAL INCOME, EARNINGS AND OPERATING CASH FLOW: EVIDENCE FROM SOUTH AFRICAN INDUSTRIAL SHARES

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Pierre Erasmus

DOI:10.22495/cocv7i3c4p5

Abstract

Proponents of the value based financial performance measure of Economic Value Added (EVA) argue that it is a major improvement over other traditional measures. This study investigates the relationship between EVA and market-adjusted share returns, and compares it to that of residual income, earnings and operating cash flow. Relative information content tests suggest that earnings have the strongest relationship with share returns. The results from the incremental information content tests indicate that although the EVA components provide statistically significant information content beyond that provided by residual income, the level of significance is low.

Keywords: Economic Value Added, Value Based Financial Performance Measures, Relative and Incremental Information Content

How to cite this paper: Erasmus, P. (2010). The information content of economic value added, residual income, earnings and operating cash flow: evidence from South African industrial shares. Corporate Ownership & Control, 7(3-4), 454-464. http://doi.org/10.22495/cocv7i3c4p5