Operating Income, Residual Income and EVA[TM]: Which Metric Is More Value Relevant? [*]

摘要: This study empirically examines the value-relevance of three profitability measures: Operating Income (0I), Residual (RI), and Economic Value Added (EVA[TM]). [1] Motivation for research emanates from popular press's touting EVA[TM] as hottest buzzword in Corporate America. As defined by Stem Stewart, is difference between a company s net operating income after taxes its cost capital both equity debt (Stern 1993). Three decades have found that accounting earnings information content, but superiority over has only recently been studied. Addressing this question main purpose study. While term appeared early 1989 (Finegan, 1989), it received little attention until September, 1993 article Fortune magazine (Tully, The provided detailed description concept, Stern Stewart practice, successful adoptions major corporations US. Following article's kudos most recent innovation corporate performance measurement, flurry papers were published, primarily press practitioner journals, to promote (e.g., Walbert, 1993; Birchard, 1994; Brossy Balkcom, McConville, Bennett, 1995; Ochsner, 1996; Davies, Gapenski, Lehn Makhija, 1996). primary promoter EVA[TM], & Company consultant 200 companies applying paradigm financial management incentive compensation Co., 1997). list adopters includes such as: Allied Holdings, Briggs Stratton, Coca Cola, CSX, Dun Bradstreet, Eli Lilly, Federal-Mogul, Georgia-Pacific, Monsanto, Olin, R.R. Donnelley, Sprint, SPX, Toys R Us, Whirlpool 1999 web site: http://www.sternstewart.com). Although anecdotal stories may differ detail among users, common theme seems be adoption leads dramatic improvement stock performance. For example, Cola's returned about 200% inception 1987 middle similarly, CSX's price soared $28 $75 1988 John Blystone, CEO SPX Corporation, stated Co. advertisement, "In first half 1996 . We created $135 million market value our shareholders, 67% increase ." Lilly also experienced similar performance; since adopting increased 105% year (Davies, EVA[TM]'s purported ability deliver superior returns appears selling point evidenced following advertisement: "Forget EPS, ROE ROI. EVA what drives prices" 1995). Consequently, not surprising investment community begun including analyses. Alfred Jackson, director global Credit Suisse First Boston, straightforwardly put "At CS First, we use valuation tool because works" "Goldman Sachs on board too" (Lowenstein, February 13, 1997: C1). It even predicted will replace Earnings Per Share (EPS) Wall Street Journal's regular reports (Zarowin, Given rhetoric, are increasingly enticed bandwagon. quite encouraging, evidence supporting rhetoric anecdotal. Insufficient empirical exists support claim supremacy measure terms value-relevance. …