An Empirical Study On The Applicability Of EVA In A - Share Market

Economic Value Added (EVA) refers to the residual income after the deduction of all the costs (include the costs of shareholders’equity) from the general income of the company. It amounts to the after-tax earned profit, deducting the costs of stock rights and creditors’ rights. In economics, it represents the surplus after the deduction of explicit costs and implicit costs. EVA has been widely used as a performance evaluation index overseas, while its use application in China is quite limited. It may be used to the late development of market economy in China and may also be attributed to the fact the Chinese enterprises are still profit-oriented and ignore the importance of value creation.This rhesis selects203samples out of the Shanghai and Shenzhen300index, and uses regression analysis and other statistical methods to conduct an empirical analysis on the correlation between EVA, ECA and the stock price fluctuation and its rate. Th e result of the analysis is that ECA can better explain the stock price fluctuation in cap ital intensive industries while EVA do better in labor intensive industries. It reflects th at ECA is more important to capital intensive industries, where the input-output ratio r eflects the value creation process in these industries.Through analysis, it can be concluded that EVA cannot effectively explain the st ock price fluctuation, that is, it seems EVA is not applicable to the Chinese A-share m arket currently. It may be subject to the ineffectiveness of Chinese capital market and the deviation of statistical indicators and computing methods, but it still reveals that th ere is an urgent need for the listed companies in China to improve their value creation abilities.