Correlation between Economic Value Added and Market Value Added for publicly owned Brazilian companies

Abstract

This article deals with value creation as measured by Economic Value Added (EVA®) and Market Value (MVA®) which are methods developed by an American consultant, Stern Stewart & Co, in the late l980's. Economic Value Added is defined as the difference between net operating profit after taxes and the cost of capital invested in a company, while Market Value Added is the difference between market value and the total capital invested in a company. G. Bennett Stewart III, who conceived this approach together with his partner Joel M. Stern, found a strong correlation between Economic Value Added and Market Value Added. Our research investigated whether this also applies to a sample of publicly owned Brazilian companies traded on the São Paulo Stock Exchange between 1996 and 2001.