Evaluating the information content of nominal and inflation‐adjusted versions of the measure Economic Value Added (EVA) Available to Purchase

This study implements inflation adjustments, as proposed by International Accounting Standard 15 (IAS15), to determine an inflation‐adjusted version of Economic Value Added (EVA). The relationships between the nominal (EVAnom) and inflation‐adjusted (EVAreal) versions of EVA, and market‐adjusted share returns are investigated, and compared with those of residual income, earnings and operating cash flow. Relative information content tests suggest that earnings have the strongest relationship with share returns, while the results of the incremental tests indicate that the EVAnom and EVAreal components do not provide statistically significant information content beyond that provided by residual income.