Eva Information Content Of Empirical Studies

The first chapter summarizes and classifies the main research results concerningInformation Content and EVA in both domestic and international academics. Thefollowing chapter retrospects the theoretical origin and development stages of EVAafter giving it a definition. The concept of Residual Income is then introduced, whichbears the same economic essence with EVA. The paper claims that EVA is a specialform of Residual Income: the main differences between the two lie in the adjustmentsmade to the income and capital measures under GAAP when computing EVA.In the first part of Chapter Three, it illustrates Biddle et al.(1997)'s research, whichdescribes the relations between EVA and other earning measures (namely cash flowfrom operation, earnings before extraordinary items, net operating profit after taxesand residual income etc.) through deposing EVA into five composing parts. In thesecond part, the paper optimizes Biddle's model: the Net Profit measure is used tosubstitute operating profit;the measures of Accrual and Residual Income arere-defined. Based on these alters, it re-deposes EVA to separate the unique composingpart, which distinguishes EVA from traditional earning measures (the paper choosesNet Profit and Cash Flow from Operation as the research measures).Model design in the fourth chapter includes the design of Relative InformationContent test and the design of Incremental Information Content test. The RelativeInformation Content test design borrows the research model from Biddle, but employsa different empirical approach, changing the Mizon and Richard (1986) test to theVuong (1989) test;while designing the Incremental Information Content test, itmodifies Biddle's empirical model (based on the re-deposing of EVA in ChapterThree), and reduces the dependent variables from five to four, which ensures bettereffect when testing the Incremental Information Content of EVA.The paper takes empirical study with 773 samples of 2001 China's listedcompanies and concludes that: as for the Relative Information Content, EVA lags farbehind the traditional earning measure Net Profit, even is far inferior to ResidualIncome, which resembles EVA in economic essence but does not undergo complexaccounting adjustments as EVA does;as for the Incremental Information Content,although the unique composing factor of EVA contains some kind of IncrementalInformation Content, its incremental effect is insignificant compared to thecomposing factors (Cash Flow from Operation and Accrual) of traditional earningmeasures.In the last part, it analyzes three possible reasons leading to the conflicts betweenthe empirical test result and the EVA theories.