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EVA and Traditional Accounting Measures: Which Metric is a Better Predictor of Market Value of Hospitality Companies?

Oklahoma State University, kwoo{at}okstate.edu

This study tests the hypothesis that Economic Value Added (EVA) is more highly associated with hospitality firm values than with traditional performance measures. The purpose of this study is to provide empirical evidence on the relative and incremental information content of EVA and traditional performance measures, earnings, and cash flow. Regression analysis tests the information content of EVA and indicates that earnings are more useful than cash flow in explaining the market value of hospitality firms. EVA itself has very little explanatory power. Incremental information content tests show that EVA makes only a marginal contribution to information content beyond earnings and cash flow. Overall, the results do not support the hypothesis that EVA is superior to traditional accounting measures in association with equity market value.

Key Words: Economic Value Added (EVA) • earnings • cash flow • relative information content • incremental information content • hospitality firm values

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