Friday, August 06, 2004

Does EVA beat Reported Earnings?

In an article in the latest issue (Winter 2004) of the Journal of Applied Corporate Finance, Glenn Feltham, Grant Isaac, Chima Mbagwu and Ganesh Vaidyanathan (all professors of Canadian University of Saskatchewan) report the results of their revisit of the famous study by Garry Biddle, Robert Bowen and James Wallace (Journal of Accounting and Economics, 1997) in which they found that market-adjusted stock returns were more closely associated with reported earnings than with EVA.Feltham ea report that they were unable to replicate the findings of Biddle ea. The results of the new analysis supports the claim that EVA has greater power than earnings in explaining market-adjusted stock returns. A significant conclusion I'd think.