Economic Value Added or Earnings per Share? An Incremental Content Analysis

Abstract

The primary objective of the study is to determine the relative and incremental information content of Economic Value Added (EVA) as compared to the traditional accounting measure of Earnings per Share (EPS). The study employs the methodology derived from Easton and Harris (1991). The study sample comprises 30 largest listed non-financial firms on Pakistan Stock Exchange (PSX) and covers the period from 2005-2014. The findings indicate that EPS outperforms EVA in capturing the market trends of stock return performance. The results of the research negate the common notion of EVA as a superior measure of firm performance. Although, evidence obtained from empirical tests illustrates that EVA provides marginal incremental information combined with EPS, but it is low. The study offers academicians, practitioners and investors a more accurate measure by which to assess performance in the markets.