The information content of Economic Value Added of food-processing firms in the Czech Republic in the comparison with the information content of traditional performance metrics

Abstract

The topic of this paper is motivated by the increasing popularity of Economic Value Added (EVA) and by the need to make the managing process of Czech agribusiness firms more efficient. Through adoption of EVA principle, the proponents of EVA argue, that EVA will lead to increased efficiency in the management and allocation of all assets and hence increased shareholder value. Though from the theoretical point of view EVA is seen as a superior performance metric, the results of the most empirical studies do not support this claim. One of the standard argument against EVA superiority results from the statistical survey of the relationship between EVA and traditional performance measures. Despite of the results of the most empirical studies this paper assumes (with regard to the specifics of Czech food processing sector) a difference in information content of EVA and traditional performance metrics. The intent of this article is to provide a simple regression test of the hypothesis that between EVA and traditional performance metrics is not tight linear dependency, which would point out that EVA has the same information content as traditional performance measures. The regression results indicate in all cases a positive correspondence between EVA and financial performance metrics with very low dependency of EVA on the financial metrics, which supports the examined hypothesis.

Keywords

• economic value added
• traditional performance metrics
• information content