The Information Content of Economic Value Added and Residual Income - Evidence from Jordan

Abstract

The objective of this study is to supply independent empirical evidence on the information content of Economic Value Added (EVA), accounting earnings measures and residual income (RI). The other objective of this study is to boost interest in EVA in the business press, along with boosting the use of EVA by companies and increasing its use in the field of academics.

39 Jordanian industrial shareholders companies represent the study sample from 2002 to 2010. The study findings reveal that net income (NI) exceeds residual income (RI) and economic value added (EVA) in forecasting ability for stock returns.

It should be noted that the findings do not back Stern Stewart & Co. claims that economic value added is better in comparison to different methods in accounting for stock prices and returns.

Keywords: Information Content, Economic Value Added, Amman Stock Exchange, residual income, Stock Returns.