VALUE RELEVANCE OF EVA IN MERGERS AND ACQUISITIONS
Post by MSF Chula at Tuesday, 8 August 2017 10:35 AM

This study investigates the value-relevance of the EVA (Economic Value
Added) in the aspect that the EVA can outperform other accounting measures using
mergers and acquisitions data. Relative and incremental information content tests are
conducted to investigate whether EVA is more highly correlated with the takeover
premium, acquirer excess return and combined return than other traditional
accounting measures (CFO, EBEI, RI), and examine which components of EVA, if
any, contribute to these association. Relative information content tests show that CFO
is more highly correlated with the target premium and combined return while EVA
can best describe the variation in acquirer abnormal return. However, these
differences in explanatory power are not significant. For the incremental information
content test, the results show that EVA components add only marginally to the
information content (only CFO and Capital Charge (CapChg) which is not the unique
component of EVA). Considered together, there is no enough evidence to claim that
EVA outperforms other accounting measures in mergers and acquisitions.

Last updated at Tuesday, 8 August 2017 10:35 AM