IS ECONOMIC VALUE ADDED MORE ASSOCIATED WITH STOCK PRICE THAN ACCOUNTING EARNINGS? EVIDENCE FROM PAKISTAN

Abstract

This study seeks to provide an answer to the ongoing debate over the superiority of
economic value added (EVA) upon traditional accounting based tools of performance
measurement in explaining stock price of a firm. This Study was formulated to test the
relative and incremental information contents provided by EVA and accounting
measures of return like ROE,ROA, OCF,earnings per share after tax (EPSAT) and debt
to equity ratio (DE). A total of 28 non financial firms listed at Karachi Stock Exchange
were analyzedover the period 2009-2012. In order to empirically test the hypotheses,
panel data regression was applied and our findings did not support the claim of EVA
proponents of its superiority over accounting based measures of performance. Rather it
was found that accounting measures outperformed EVA in explaining the behavior of
stock prices of firms in Pakistani market. This study is the first of its kind in the context of
Pakistan.