Which Explains More On Corporate Value, EVA Or Traditional Accounting Index?

For a long time, investors and managers use traditional accounting index ROE, ROAetc., to measure operational proficiency of firms, however, these traditionalaccounting indexes have some clear shortcomings, for example, these indexes don'tconsider risk, opportunity cost etc. As to investors and managers, it is an urgentissue to find a more suitable index to measure operational proficiency of firms.And EVA is the right choice for it.National learners usually use the database provided by Stern Stewart ChinaCompany, or they reckon EVA of public listed firms by themselves. Existingresearches have some disadvantages, some learners use database provided by SternStewart China Company directly and do not consider the detailed characters of chinastock market. Some learners just use CAPM directly and reckon EVA of public listedfirms by themselves. They do not realize that china stock market is not maturewith high speculative factors and other shortcomings. What's more, they do notconsider the non-circulating stocks completely, and their pricing method is notrational.The difference between the paper and existing researches is that this paperconsiders the detailed characters of china stock market, and realizes that thestock market is not mature. This paper uses the EVA computational method whichthe Stern Stewart China company provides partly. This paper replaces equity returnwith median of return rate of net assets of public listed companies. Then it reckonsthe cost of capital in public listed companies, and obtains the EVA of industrycompanies from 2001 to 2003. Then it compares relative information content in firmvalue of EVA and traditional accounting index, and finds that EVA contains moreinformation in firm value than traditional accounting index, and it can explainmore in corporate value. Finally, this paper explains and discusses further andproposesauthor's viewpoint: the method of reckoning capital cost is the key factorto the use of EVA, as well as the market valid assurance. If we could deal with the two aspects above, this paper reveals EVA contains more information contentin firm value than traditional accounting index.