Does EVA® beat earnings?: Evidence on associations with stock returns and firm values

This study tests assertions that Economic Value Added (EVA(R)) is more highly associated with stock returns and firm values than accrual earnings, and evaluates which components of EVA, if any, contribute to these associations. Relative information content tests reveal earnings to be more highly associated, with returns and firm values than EVA, residual income, or cash flow from operations. Incremental tests suggest that EVA components add only marginally to information content beyond earnings. Considered together, these results do not support claims that EVA dominates earnings in relative information content, and suggest rather that earnings generally outperforms EVA. (C) 1997 Elsevier Science B.V. All rights reserved.