An Interindustry Analysis of Economic Value Added as a Proxy for Market Value Added

Abstract

Companies worldwide use the financial metric Economic Value Added (EVAR) to help then assess their financial performance. However researchers speculate that EVA is better suited to traditional manufacturing businesses than to knowledge-based businesses. This study empirically rests the relation between capital intensity and EVA's ability to serve as an effective proxy of market value added. We find that EVA is no less at home in the information economy than it is in traditional manufacturing businesses. However, our results do indicate that in most of the industries studied, the marginal costs of using EVA as a proxy for market value added are not justified by any marginal benefits.