Value-relevance Of EVA: Based On The Empirical Evidence Of The Listed Companies In China

Under the Environment of capital market, the earning data in the annual reports and intermediate reports are one kind of most important method, according to which those listed companies transfer information to investors. Among the modern financial theories, each kind of appraisal model frequently the earnings target forecasts and the analysis company's value based on accountant.EVA, an acronym for economic value added, as a kind of new financial index is hailed by Stern-Stewart & Company based on a long-known and compelling concept called residual income in 1980's. As defined by Stern Stewart Management Service of New York City, EVA is the difference of a company's net operating income after taxes(NOPAT) and its cost of capital of both equity and debt. Among them, the investment cost includes the debt capital cost and equity capital, NOPAT bases on the financial report of company after being adjusted and computed. Although, EVA still is one kind of profit target in essence, which has obvious difference with accountant profit. The most awful defect of traditional accountant profit target lays in neglecting the confirmation and measurement about equity capital cost. It seems"creating earning"but actually harms the interest of the shareholder. Because it has considered comprehensively all of fund cost that brings profit for the enterprise, has reflected accurately enterprise value which creates for the shareholder, thus is advantageous in combining the decision-making and the shareholder wealth to achieve the goal of maximizing shareholder wealth, namely company value maximization. Therefore, EVA is more scientific than the traditional accountant index as a performance measurement.Although, as a creative measurement of enterprise performance based on the shareholders'value, there is no accurate answer about the correlativity between EVA and the company market value.According to the empirical evidence of the relevant degree in Chinese stock market, this research is for the purpose of proving the value of EVA. Using a sample of all companies listed on Shanghai and Shenzhen Stock Exchanges from 2000 to 2002 with available data, this study examines evidence of value relevance of EVA compared with the traditional accounting measurement based on the Pearson Correlation coefficient. The result shows: in the Chinese capital market, EVA is not more valuable to the traditional profit target. Except to the minority professions, the short-term earning measurement is correlation with the company value, although with different examination ability.