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Volume 29 Number 2 December 2004
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Australian Evidence Concerning the Information Content of Economic Value-Added |
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Andrew C. Worthington Tracey West
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Abstract |
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Pooled time-series, cross-sectional data on 110 Australian companies over the period
1992-1998 is employed to examine whether the trademarked variant of residual
income known as economic value-added (EVA®) is more highly associated with stock
returns than other commonly-used accounting-based measures. These other measures
of internal and external performance include earnings, net cash flow and residual
income. Three alternative formulations for pooling data are also employed in the
analysis, namely, the common effects, fixed effects and random effects models, with
the fixed effects approach found to be the most empirically appropriate. Relative
information content tests reveal returns to be more closely associated with EVA® than
residual income, earnings and net cash flow, respectively. An analysis of the
components of EVA® confirms that the GAAP-related adjustments most closely
associated with EVA® are significant at the margin in explaining stock returns.
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Download this article.
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Keywords |
| VALUE-RELEVANCE; RELATIVE AND INCREMENTAL INFORMATION CONTENT; ECONOMIC-VALUE ADDED; RESIDUAL INCOME |
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Contact DetailsAndrew C. WorthingtonSchool of Economics and Finance Queensland University of Technology GPO Box 2434, Brisbane, QLD 4001. E-mail: a.worthington@qut.edu.au
Tracey West
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