EVA and Stock Returns: Are They Correlated?

Matione Sauro; Mashamba Tafirei

doi:10.5817/FAI2016-2-3

EVA and Stock Returns: Are They Correlated?

Vol.7,No.2(2016)

Matione Sauro Mashamba Tafirei

https://doi.org/10.5817/FAI2016-2-3

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Abstract

The study sought to examine the relationship between economic value-added (EVA) and stock returns in commercial banks listed at the Johannesburg stock exchange. Furthermore, we also investigated other traditional value measures like Dividend per Share and Return on Equity in-order to identify which metric measures firm value better. The data was analysed with the Ordinary Least Squares (OLS) method. Economic value added was found to have significant influence on the financial performance of banks. This explains why traditional performance measures have driven investors to look for alternatives, such as value based measures in most developed economies. Therefore, EVA can be reliably used to measure corporate value and performance simultaneously. This at least should be a good encouragement for South African banks to adopt Eva so as to keep up with local and international competition for foreign capital (FDIs) in global financial markets. Hence, South African banks should consider supplying EVA data when releasing annual performance figures.

Keywords:
economic value added; traditional metrics; shareholder value; value creation; management tools; commercial banks

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