Is Economic Value Added Relevant for Market Value? A Sector and Industry Analysis of European Companies

Abstract

The objective of the present article is to examine the effect that Economic Value Added (EVA) has on the market values of companies. In doing so, we utilize a large sample of European stocks, over the period 2015-2020, and compare the above relationship between secondary and service sector firms, along with an industry analysis. The sample firms were classified into six industries, namely consumer cyclical, consumer non-cyclical, technology, communication, basic materials and industrial. A single index regression analysis model was employed having economic spread as the independent variable and the ratio of market value over the invested capital as the dependent variable. The results unveiled a statistically significant positive relationship between the ratio of value over invested capital and economic spread for both the service and secondary sector. On an industry basis the statistically significant positive relationship between the variables of the regression model exists only in the consumer cyclical, consumer non-cyclical and the basic materials industry.