An empirical study into economic value added (EVA) as an indicator of share price in the South African context.

Abstract

This research was conducted to determine whether the intrinsic share values that are

obtained using the EVA valuation model are an indicator of share prices as quoted on

the JSE Securities Exchange. The research did not differentiated between companies

that have implemented EVA in South Africa and those that have not.

The research was conducted by performing EVA intrinsic share price calculations for

43 companies listed on the JSE Securities Exchange. These EVA share prices were

correlated to the actual share price as quoted on the JSE Securities Exchange, for the

current and lagged periods of one and two years. The resultant correlation coefficients

were tested for significance at the 5% level.

The results show that there is no statistically significant correlation between the EVA

intrinsic share values and the share price as quoted on the JSE in both the same and

lagged periods. Hence we cannot conclude that EVA is an indicator of share price.