Abstract:
With increasing pressure on firms to deliver shareholder value, there has been a renewed
emphasis on devising measures of corporate financial performance and incentive
compensation plans that encourage managers to increase shareholder wealth. One
professedly recent innovation in the field of internal and external performance
measurement is a trade-marked variant of residual income known as economic valueadded
(EVA). This paper attempts to provide a synoptic survey of EVA's conceptual
underpinnings and the comparatively few empirical analyses of value-added performance
measures. Special attention is given to the GAAP-related accounting adjustments
involved in EVA-type calculations. The study was conducted to check the impact of EVA
on stock returns. To find the relationship between both stock prices and EVA Kse-100
companies were selected as population and out of these, 19 companies were selected as
their results were completely available for 5 years (2007 to 2011). Panel regression was
run to check the relationship between both. Results from the research shows that EVA
over Stock returns is insignificant. There are some other external factors which impact
the share prices. EVA is measure, which company performance can be measured but it
cannot be used to forecast the Stock returns of the company. Thus, it can be understood
that investor do not give so importance to EVA for its investment decision. But after
taking share prices lag the level of insignificance was reduced. This shows that share
prices are dependent upon their past values, the market is inefficient and effect of every
news travels.
