International Journal of Research in Finance and Marketing

Theoretically, it is almost a consensus that modern value based financial performance measure especially EVA is superior to traditional ones as a financial performance measure tool among shareholders’ because it considers overall cost of capital making EVA as a measure of pure economic profit. But while question rose about the explanatory power of financial performance measures, several researchers and practitioners have claimed that EVA is superior to traditional accounting measures in explaining corporation's change of market value. Other researchers have refuted these claims by supplying strong proof in support of traditional accounting measures. Numerous empirical studies have been conducted so far in this regard over the last two decades but the question is still unsettled and subject to enormous debates among the researchers and academicians. Thus, a modest attempt has been made here to examine the information content of EVA and traditional financial performance measures (ROA, ROCE, ROE, and EPS) in explaining variation in market value of firm that will enable to recognize that whether EVA can be a preferred measure in valuation of companies for shareholders. Relative information content test as well as Incremental information content test approach has been applied here to trounce the problem. For this 50 reputed Indian firms listed in BSE for the period from 1st April 2000 to 31st March 2016 have been considered here as sample for carrying out the study. Various statistical tools and techniques along with few statistical test such as ‘t’ test, ‘F’ test, Collinearity test (VIF) and Akaike information Criterion test (AICc) etc. have also been applied at appropriate places for analyzing the data. The findings of our study show significant support for EVA and provide evidence about its superiority as a financial performance measure as compared to conventional accounting based financial performance measures.