Is EVA an Effective Performance Measure; Evidence from Colombo Stock Exchange, Sri Lanka

Abstract

The aim of this study is to explore the relationship between Economic Value Added (EVA) and stock return in Sri Lanka. The study sample consists of 1695 firm year observations covering 113 public limited companies listed in Colombo Stock Exchange (CSE) for 15 years period from 1999 to 2013. This study was based on secondary data, collected from the CSE data library and the published financial statements of companies considered in the sample. Pearson Correlation Coefficient analysis and the fixed effect model of Panel data Regression analysis techniques were used as the statistical techniques to analyze data. The statistical analysis revealed that there is no significant positive relationship between EVA and stock return in Sri Lanka. Contrary to the arguments of EVA proponents, the researcher suggests the market participants of Colombo Stock Exchange to select other performance measures instead of EVA to make rational economic decisions.