Home › Vol 5, No 1 (2016): August  ›  Abstract ›  View Pdf

The Potential of Economic Value Added (EVA) as Predictor of Stock's Marketability

Ringgold P. Atienza

There is very little evidence on the adoption of the value-based management (BVM) performance measure such as the economic value added (EVA) in the Philippine companies. Empirical evidence in other countries showed that EVA is a superior measure for shareholder value. However, the application of EVA is proved to be harder as compared with readily available measures. This study aimed to test the potential of EVA as predictor of stock’s marketability. It also aimed to provide companies the justification whether the benefits of using EVA exceeds its costs. Historical data from 2003 – 2016 of the Philippine companies using the Compustat - Capital IQ from Standards and Poor’s database were utilized. Out of 293 total companies, only 92 were retained after checking for data completeness and outlier values. The panel data were analyzed using the fixed effects model. The results showed that EVA is a superior predictor of the stock price compared to Return on Equity (ROE), Return on Assets (ROA) and Earnings per Share (EPS), although EPS is almost providing equally comparable results. Results also showed that EVA could capture some invisible value omitted by the financial statement to market valuation. While EVA generally provides potential information on company performance, it should be used with precaution and without expectations beyond what it can give. This study provides a general implication among companies on their decision to embrace EVA in their managerial performance and investor communication.

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