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Mansoor MAITAH, Abudeltef GALALH, Elshibani BASHIR

This research study looked at the analysis of the practicalrelationship between EVA and stock returns, as the researchdealt with analyzing the success of the investment policybased on generally accepted accounting indicators. Havingreviewed the theoretical research on a scale of EVA in termsof the relationship between stock prices and earnings, andthe EVA, the extent of the benefit of scale of the EVA in the

design of investment policies will be used to achieveextraordinary returns. We also presented research resultsof previous studies in this area. In general, the results of the study support the operation of the previous studies thatindicated that in spite of the existence of logical justificationof the relationship between the theory of EVA, stock pricesand revenues, results do not justify this relationship. Thepaper was processed within the framework of the ResearchProject of MSM 6046070906 "The economics of Czechagricultural resources and their effective use within theframework of multifunctional agri-food systems".

G11 Value Added Stock Return Investment Interest

Assets

The concept of the economic value added measure of efficient performance is one of the most accepted economicconcepts to express the residual income after deducting thecost of capital invested in the company. The concept of residual income can create value for shareholders socompany management should use the available resourcesin a manner conducive to achieve a return on investedcapital that is greater than the capital cost, whether (ownedor borrowed). In contrast, the concept of accounting profit,only takes into account the net profit after deducting thecost of borrowing money (interest). According to thisconcept, the residual income of any company can beexpressed as the difference between the value of netoperating profit after tax after operation and the value of theaverage cost of capital invested on the company. The

residual income can be expressed as follows:

RI t = NOPAT t - Cost of Capital t (1)

Where:

RI t Is the residual income on the time t.

NOPAT t Is the net operation income after tax and without

deducting interest on the same time (t)

Cost of the Capital t Is the cost of the capital and it iscalculated as

Capital of Capital t = WACC × Capital

Where:

WACC Is the weighted average cost of capital (owned or borrowed)

Capital Is the capital invested whiter (owned or borrowed)

According to Stern Stewart & Co, the EVA can be calculatedas

EVA = Adjusted NOPAT - Adjusted Cost of Capital (2)

Where

EVA Is the Economic Value Added.

Adjusted NOPAT Is the adjusted net operation incomeafter tax and without deducting theinterest.

Therefore, the EVA takes a positive value if the adjustednet operating profit after tax is greater than the value of theadjusted cost of invested capital, In the contrastEVA takesa negative value if the value of the adjusted net operatingprofit is less than the adjusted cost of the invested capital.Stern Stewart & Co has undertaken several adjustments tothe net operating profit accounting to prevent the impact of accounting policies on the profit. The company introducedadjustments to the concept of the invested capital, which isused in the calculation of the average cost of capital,Therefore, the reasons for these adjustments are madewith the aim of calculating the net economic profit not theaccounting profit . So the exclusion of certain accountingadjustments, which do not involve cash flows, and thecapital adjustment to reflect the assets value invested onthe company ,along with excluding the effect of accounting

policies leads to the possibility of a comparison betweeneither the results of the performance of different companiesor different sections within the same company, .It also helpsto reduce the opportunities for management to useaccounting policies designed to control profitability that aresaluting the removal of the impact of these policies. (SternStewart & Co) has pointed out that these amendments areessential in view to containing the net operating profitaccounting on many of the values, which do not reflect thecash flows, and are subject to the impact of differentaccounting policies.

According to the EVA concept, the net EVA generatedaffects the market value of the company. On the other hand, raising the EVA for any company will increase itsmarket value. Stern Stewart also provided another

measure for the company's performance: the market valueadded (MVA). This is calculated as:

MVA = MV of the firm Capital (3)

Where:

MVA Is the Firm Market Value Added

MV Is the Firm Market Value

Capital Is the capital invested on the firm after making theadjustment suggested by Stern Stewart &Co

According to the theoretical side, there is a positiverelationship between the MVA of the company and its netEVA, Therefore, the MVA reflect the net present values of the EVA, which it is expected to achieve in the future, For example, in the case of a predicted steady economy, the

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value added of the company in the future (with the absenceof growth), the MVA, can be calculated as follows (Peterson,1997):

MVA = EVAK (4)

Where:

K Is the Require Rate of Return which reflects the costof the capital

Also, the Stern Stewart Company has undertaken a greatmarketing campaign for the concept of EVA measurementand the various adjustments that should be done on the netaccounting profit in addition to the brand (EVA), The resultsof this campaign have allowed the company to expand to alarger number of customers, with 300 clients representingfacilities and, great business, with many companies aroundworld. A set of statements for attracting customers (eye

catching statements), were also included in theadvertisements for the company. For example, the EVAmeasure is the key to creating wealth for shareholders, sothe true measure of a company's performance is the EVA,

not the earnings per share or return on investment or returnon equity property. Stewart (1991-1994) said proponents of the measure that any change in the value of the companywas due to a change its EVA (Tully, 1993-1994).

In addition, to the claim he can use the EVA changes in theinterpretation of the value of the company and its stockreturns better than traditional accounting standards(Stewart, 1994).

The spread of the concept of EVA and a high number of customers (Stern Stewart &Co) to the emergence of manyperformance metrics of economic competition marketed bydifferent companies, has led the competition to be noted inthe newspapers and financial magazines. These called itthe war scales between different companies, for example,the scale of Cash Flows Return on Investment rate

(CFROI), which are marketed by (HOLT Value Association), the Total Business Return (TBR), which are marketed by(Boston Consulting Group), Shareholders Value Added(SVA) the Company (LEK /Aclar ),discounted economicprofits for Marakon Associates, and finally Economic Valuemanagement KPMG.

The theatrical claims have led the importance of standardEVA in the creation of shareholders wealth, and the role of EVA in the interpretation of stocks return and changes inthe market value of the company, to spread the concept tomany publications and books on performance measures of internal and external accounting .in addition, there havebeen calls to disclose the measure of the value added of the business instead of companies disclosing earnings per share of the profit, and the results of the business and stockperformance reports in newspapers and financial

magazines (Zarowin 1995). Despite all this, there is alogical explanation for the theoretical relationship betweenthe EVA and shares prices and revenues, but where is alsocriticism on this scale including:

The measurement of EVA reliable on the value is reflectedin the historical statements accounts after making variousadjustments. It presents the historical events but does notreflect the expectation of the EVA in the future .Therefore,using it to determine the company value and to forecast thedirection of stock price is not appropriate, because itsassociation expectation is related to the future not thehistorical events.

Despite the significant publicity for the measurement of EVA, it may convince many researchers to believe that it

provides a new theory for all the problems of other measurements. However, does not provide anydevelopment of the known concepts for profit economic.

The EVA measurement does not provide any practicalmodel that can be used for evaluating the stocks anddetermining the company value.

To calculation of EVA needs adjustment on the numbers onthe financial statements. These adjustments need a set of data, which appears on the series of financial statements Incontrast to residual income and can be calculated directly.According to many studies (Biddle et al 1997-1999), thereare no significant differences and effects between the valueof each of the residual income derived from Equation (1)and the EVA derived from Equation (2). Therefore, there isno theatrical value to these adjustments, which wereproposed by (Stern Stewart & Co) on the accountingnumbers to measure the EVA.

In addition to the criticisms on the theory to measure thevalidity of the use of EVA to interpret the changes in stockprice and revenues, many empirical studies show the fieldof claims of the supporters of the theoretical of measure of EVA. (Biddle et al, 1997, 1999; Velez Pareja 2001;Peixoto, 2002)

Although the validity theory of the existence of therelationship between EVA , the shares price, and valueexists the usefulness of any indicator of performancemeasured by the presence of relationship the moralprocess between the indicator and behavior of actual stockprices on the securities market is unknown (Kothari,2001).Therefore, the general objective of the study is anempirical investigation of the relationship between EVA andstock prices, and an analysis of the benefit of the use of EVA in the design of investment policies that can be usedto achieve extraordinary returns. This will look at a private

data set of registered businesses in the stock market inEgypt.

To achieve the overall objective, the first part of the study isan analysis of the fields, which studies the previous processin the selection of the relationship between the scale of theEVA, stock price and dividends. Section three of presentsthe literature review of the study while section four presentsthe study hypotheses and section five deals with themethodology of the study. The last part includes a summaryof research and its results.

According to the theoretical relationship between the EVAand stock prices and revenues, the high EVA generated bythe facility increases its value, and thus is reflected in thehigh prices of the shares of these established companies.

As the case of the validity of these allegations, thetheoretical composition of investment portfolios contains theshares of enterprises with high EVA, so we must achieveextraordinary returns compared to all the average marketreturns and returns on portfolios that contain the shares of enterprises with low EVA.

In addition, many studies have tested the relationshipbetween prices and earnings indicators of EVA and theremaining income and accounting indicators recognized asdependent variables. One of the leading studies in this areahas targeted the testing the relationship between the EVAof all dividends and the value of the entity. The study testedwhether the data value-added and value components of this help explain the stock returns and changes in the valueof the companies more data from the accounting profits or


THE RELATIONSHIP BETWEEN ECONOMIC VALUE ADDED AND STOCK RETURN, AN EMPIRICAL STUDY TO TESTTHE THEORETICAL CLAIM

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not. The results of the study showed, that the profitaccounting helped in interpreting the returns stocks better than all the data residual income and the EVA, also theresults indicate that profits contribute to the interpretation of accounting earnings and the stock value of the business

greater than other economic scales, so this refers to thefutility amendments proposed by Stern Stewart & Co.

Biddle et al. (1997) tested the same pre-existingrelationships in the period following the appearance of anarticle (Tully 1993), which pointed out that the use of standard value-added economic is the real key to creatingthe wealth of shareholders, and showed that they have hadan high impact on the popularity of the concept of EVAmeasure. The study tested the relationship by using the606 view results and was shown no support to the theorythat the allegations refer to the superiority measure that theEVA to the Metrology accounting in the interpretation of changes in stock prices.

OByrne (1996) tested the relationship between stockreturns and between both the EVA and net operating profit

after tax accounting. The results showed that theaccounting profits contributed to the interpretation of thestock return to a lesser extent than the EVA, but that thedifference between the scales is not a factor (manor reached 33% of the relationship between stock return andEVA).. The study concluded that these scales indicate anincrease in the contribution of standard EVA in theinterpretation of stock returns for traditional accountingscales. The results of this study were criticized becausemodifications were carried out when testing the scale of theeconomic value and he did not make the same adjustmentswhen conducting an analysis of the relationship betweenreturns shares and profit accounting.

Bernstein and Pigler (1997) tested the possibility of usingdata with the EVA in the composition of investmentportfolios that seek normal returns, and that through theformation of investment portfolios based on the data, theEVA of the shares and trade policies is based on buyinghigh-value stocks and selling stocks with a low EVA .Thestudy pointed out that if we assume the theoretical validityof the claim that businesses that achieve high EVA claim toincrease the wealth of shareholders, the composition of investment portfolios containing businesses that achievehigh EVA is supposed to achieve high rate of returncompared with the average returns in the stock market. Inaddition, the average yield that can be achieved by usingthe investment policies is based on generally acceptedaccounting indicators. The study of the composition of portfolios among the registered businesses in the New Yorkmarket was covered by the S & P 500 index for the periodfrom 1987 to 1997. The studys results showed thatcontrary to allegations, the use of theoretical measures for the EVA as a basis for the selection of business premiseswithin the portfolio did not make any unusual return.

Based on the results of previous studies and the businessregistered in the stock markets, it is clear that much of thescientific evidence that indicates a lack of health (Almzagmtheory) advocating the superiority of the measure of EVA inexplaining the behavior of prices and returns of stocks onthe indicators of accounting practices. As indicated in theresults of these studies, amendments proposed by theStern Stewart & Co. are not feasible .On the accountingfigures to reach the EVA, saluting contributions to residualincome calculated directly from the accounting figurespublished after the deduction of the cost of capital,expresses the changes in stock prices and returns morethan the contribution of the EVA.

To achieve the overall objective of the study and based onthe balance of the accounting research in the field, we testthe relationship between stock price and earnings and theEVA .In this paper, we will test two assumptions .The firstone will measure the relationship between the returns onshares of businesses and the EVA generated by this topicinstallations ,and aims to test the validity of the prosecutiontheory that the businesses with high EVA lead to anincrease in the wealth of shareholders .Therefore, theportfolio containing shares with high EVA is supposed toachieve a high rate of return compared with the averagereturns in the stock market .The hypothesis can beformulated as follows :

The first hypothesis:

Using the EVA to design the investment policies leads toincreasing normal returns on investment compare withmarket return.

The second hypothesis:

The use of investment policies based on the EVA achieveshigher average returns than the average returns achievedby the investment policy based on generally acceptedaccounting indicators.

Research sample was selected from a group of registeredenterprises in the stock market in Egypt. The term of studyincluded three years in the period from the beginning of 2005 to 2007. The study sample included over 40businesses (23), representing the most active companiesaccording to the official bulletin of the Stock Exchange inCairo and Alexandria (17). And we can test the major hypotheses for research, and achieve the overall objectiveusing the availability of the following data:

1. Annual financial statements for the year 2005 (to usethe data for net accounting profit and the book valueof property rights, and to calculate the rate of returnon the property rights and the value of long-term loansand costs).

2. The annual dividends to shareholders and the date of distribution.

3. Stock prices daily enterprise group was under studysince the beginning of 2005 and 2007 to account for dividends accrued daily and during the period.

4. The daily value for the index to calculate the averagemarket return in the same period of the study.

The following conditions apply to determine the final sampleto search:

Ÿ

Use data from the financial statements of accountingat the beginning of the study period.

Ÿ Availability of data on daily closing prices for thebusinesses under study.

Ÿ Use the data from Egypt stock market index (CASE30).

The application of the conditions precedent to the exclusionof three companies listed among the companies mostactive in 2007, but that the date of registration of thesecompanies in the stock market is a relatively recent date. Inaddition, that there is no series of integrated data on theprices of traded shares during the study period. Therefore,the final sample for the study included 28 companiesregistered in the stock market, giving a total market valueof 31.78 billion pounds. Table 1 describes the companiesby the market value of the business.



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The trimmed mean can be calculated after deducting thehighest and lowest 5% from all views.

To measure the relationship between EVA and stockreturn, and to test the first hypothesis of the study and the

private sectors policy adopted on the scale of EVA inachieving extraordinary returns compared to marketreturns, we used the following steps:

1. Account the EVA in each stock sample under studyand for that over the years of study .Due to the lackof disclosure of the EVA, according to theadjustments proposed by Stern Stewart that relyon the scale of economic profits (residual income),which can be calculated directing by using datafrom published accounting lists , after theauthorities agreed the average cost of capital(using equation 1) ,and has been calculated on thebasis of rate of return without risk, in addition to apremium for risk.

2. Ordering the companies downward according tothe earnings per share of the EVA in the beginning

of the period. In addition, the composition of investment portfolio contains a set of companiesthat generate the highest EVA per share (the top20%) and the theoretical claim assumed that theinvestments create wealth to shareholders, andthereby achieve a high rate of return compared withthe average market return during the same period.

The rate is calculated to achieve the expected return on theproperty rights as follows:RRR = RFR + Risk premiumWhere:

RRRIs the required rate of return achieved on the propertyrights

RFR is the free rate of return without risk has been usedrate of return on treasury bonds at the beginning of

the study period as a basis for the rate of return risk- free.

Risk Premium is a premium for risk, despite the differenceof the premium, according to industry type and sizeof the facility replaces the analysis, the assumptionhas been deafening silence as well as one for allthe companies of 4 %.

3. Calculating the daily returns for all stocks on the sampleof the study on basis over the study period (from 01.01.2005until 31.12.2007), as follows:

Ri t = Pi t -Pi t -1 + Di t (5)

where:

Ri t is the share return on the any day (i)

Pi t is current share price on the end of any day( t)

Pi t-1 is the share price on the previous day ( t-1)

Di t the profit dividend

4. Calculate the daily return of the stock market on adaily basis over the study period (from 1.1.2005until 31.12.2007) as follows:

Rmt = (Mi t - Mi t-1 )/Mi t-1 (6)

where:

Rmt The market return on the day (t) and using market

index (CASE30) to calculate it

Mi t The index value on the end of day (t)

Mi t-1 The market index value in the perfuse day (t -1)

5. Collecting the daily returns on a monthly basis per share of the sample and the market index as follows:

CRi t = t=1t=kRi t (7)Where:

Crit Sum of share return on the day (t)

K The total time of study (42 months)

Ri t The share (i) return on the day (t)

So we estimate the accumulated return of the market indexduring the study period using data market return instead of the market return.

6. Compare portfolio returns on stocks with the highestEVA. Average market portfolio returns and, the abilityto compare the extent of this portfolio to determine thesectors (segments) in the market securities portfolio,which can be used to achieve extraordinary returnscompared to market return.

To test the second hypothesis of the study we compare thereturns generated by the investment policy based on thescale of the EVA, with the revenues of investment policiesbased on indicators of accounting practices, using earningmultiplier indicator, which measures the relationshipbetween the share price in the period and earnings per share of the profit .This is calculated as follows:

PE = P t EPS

PE Earnings Multiplier

P t Share price on the time ( t )

The earning multiplier has been calculated for all the sharesof enterprises subject to study at the beginning of the studyperiod (1January2005) and the investment policy designedbased on the data of earning multiplier by following thesesteps:

1. Order the companies in our sample in accordance tothe earning multiplier in the beginning of the period,and the composition of investment portfolio containsall the companies which meet minimum earningsmultiplier after the exclusion of companies with amultiplier negative (minimum 20% of companiesaccording to the value earning multiplier). So theinvestment in these companies leads to achieving highinvestment returns compared with an average marketand the rest of the firms with a high value of earningmultiplier.

2. Measuring the stock return for all components of thesample under study on a daily basis over the period of study (1.1 2005 to 31.12.2007) in accordance withEquation (5) and to collect these revenues over thestudy period, using the equation (7).

3. Compare the stocks portfolio revenue with the lowestearnings multiplier with the market portfolio averagereturns, to measure the ability of these wallets toidentify sectors within the portfolio of securities marketthat can be used to generate unusual revenuescompared with the market yield, In addition, comparethe returns on the portfolio returns equity portfolio withhigh EVA to determine the superiority investment



Number of views

mean intermediate Trimmed mean Standarderror

Standarddeviation

Lowvalue

Highvalue

Firstquarter

Thirdquarter

40 1588 505 1202 404 2829 8.8 16590 162 1689

Table No.1: Descriptive analysis of the companies under study by the market value of the business (value in million EGP)

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policy based on EVA from investment policies basedon accepted accounting standards.

To test the major hypotheses of the study and to achieve

the overall objective our study has been divided in twostages. The first stage measured the returns achieved bythe stock's portfolio with high EVA and compared thesereturns with those achieved by the stock market over theperiod study. The aim of this stage was to test the firsthypothesis of the study. The revenues have beenestimated daily and collected during the study period. Table2 shows the results of this stage.

1. The stocks portfolio with high EVA Achieved anegative accumulated return over the period of thestudy (-43.8%), while the market index achieved anegative return of -76.3% on the same period. Theaverage annual yield of the aggregate stocks portfoliowith high EVA -14.38%, whiles the average for themarket portfolio was (-21%). In spite of achieving anegative return for each of the portfolios, theperformance of the stocks portfolio with high EVA wassuperior to the market performance during the studyperiod.

2. The stocks' portfolio with a high EVA achieved anaccumulated return on the period of first year was-24.5%, while the total return for the market index was-43.1%. the market portfolio had a negative return of -82.1%and -76.3% on the retention period of 24 and36 months, respectively ,Administrating, and sales of portfolio stocks of EVA gave high negative revenueduring the same period of -51.7% and -43.8%,respectively. So this result supports the stock portfoliowith high EVA rather than the market portfolio.

3. The retained earnings for the period of 24 months (theperiod between 12 months and 36 months) for the

market portfolio was -28.5%, while the aggregatereturn for the stock's portfolio with high EVA for thesame period was -19.7%).

4. The stock portfolio with high EVA, started achieving apositive accumulated return during the third year of study. The value of this revenue is +10%, while themarket index achieved a positive return + 3.6% duringthe same period.

The previous results shows the market index achieved anegative revenue greater than the negative yield made bythe stocks portfolios with high EVA .This may indicate abenefit of the composition of portfolios based on EVA,however, in the case for the market trend to increase theyield for the equity portfolio, the EVA return is significantlylower than the market return. It can be explained by these

results, the systemic risk for shares with high EVA andmarket risk was lowered therefore, changes in the prices of these stocks and their returns are less than changes in themarket index both in the case of a rise or a decline so thereturn (positive or negative) for the investigator of the shareswith high e EVA is always less than the market return. Ingeneral, the previous results did not support the firsthypothesis of the study, which aimed to test the theoryallegations which referred to the use of the EVA to designthe investment policies conducive to extraordinary returnscompared to market return. The second aim of our studywas to compare the return achieved by investment policiesbased on the index earning multiplier and returns achievedby the investment policy adopted on the EVA. So wemeasured the returns earned for the stocks portfolio with

the lowest earning's multiplier. Average returns on themarket portfolio were then compared with the average returnon portfolio with high EVA. Table 2 shows the results of thisstep:

1. The stocks portfolio with the lowest earnings' multiplier is the only one that has achieved a positive return onaccumulated during the study period, and thepercentage is 2.5%, compared to a negative return of -43.8%, for the stocks' portfolio of with high EVA. Thebenchmark market return reached a negative of -76.3%for the same period. This refers to be outperformed for the stock portfolio with the lowest multiple of earningsto the stock portfolio performance with high EVA andthe average market return.

2. The average annual return for the aggregate stocksportfolio stocks with the lowest earnings multiplier was+1.15%, while the stocks portfolio with high EVA has anegative average accumulated annual return -2.04%,and the market portfolio reached the average of



Months Market indexCASE

Portfolio of stockswith high EVA

Portfolio of stockwith the lowestmultiplier of earning

1 2.5 -0.8 4.2

2 4.7 -5.8 3.2

3 -4.5 -7.3 0.6

4 -3.5 -10.8 -3.1

5 15.5 -11.9 -5.3

6 -15.9 -12.7 -7.1

7 -25.3 -18.3 -14.1

8 -38.3 -16.2 -15.3

9 -41.2 -16.7 -8.2

10 -54.2 -24.6 -12.6

11 -48.8 -23.0 -11.812 -43.1 -24.50 13.8

13 -42.5 -27.7 -11.6

14 -54.0 -35.7 -15.6

15 -61.9 -40.2 -21.7

16 -53.6 -41.8 -22.9

17 -51.7 -34.5 -18.4

18 -60.5 -32.5 -19.6

19 -71.6 -34 -19.9

20 -53.4 -27.8 -16.4

21 -67.3 -35.2 -13.8

22 -66.4 -40.6 -17.0

23 -73.5 -52 -19.8

24 -82.1 -51.7 -18

25 -86.9 -62.4 -17.726 -77.5 -51.7 -15.7

27 -78.9 -44.2 -13.9

28 -81.8 -45.4 -8.1

29 -83.1 -46.6 -3.3

30 -82.2 -47.9 -5.3

31 -84.1 -47.3 -0.1

32 -80.5 -43.2 -0.4

33 -84.1 -43.7 0.0

34 -81.1 -45.4 1.1

35 -79.5 -48.1 1.5

36 -76.3 -43.8 2.5

Table No. 2: Cumulative Holding Period Returns in %. During thestudy period (stocks portfolio with a high EVA).

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-3.1%. This result supports the outperformed of thestocks portfolio with the lowest multiple compared withthe rest of the portfolios.

3. The aggregate return of the stocks portfolio with the

lowest earnings multiplier of the ratios was -13.8%,-18% and 2.5% ,respectively for a period of 12months, 24 months and 36 months in a row, This wasa better return than the return achieved for each one,the stock portfolio with high EVA and market portfolioover the same period.

4. The stock portfolio with the lowest earnings multiplier started to have a positive earnings return during thethird year of the study The value of this return was14.7%, while the revenue of the stocks portfolio withhigh EVA in the same period was +11%, while themarket index achieved a positive return was 1.6%during the same period. These results indicate that thesuperiority of the portfolio based on the earningmultiplier index overall was better than theperformance of the market portfolio and stock portfolio

with high EVA. Therefore, useless investment policiesare based on EVA. Finally, the previous results did notsupport the second hypothesis of the study, whichaimed to test the veracity of the theoretical claims,which referred to the benefit of the using theinvestment policies based on the scale of the EVA toachieve an average revenue greater than the averagereturns achieved by the investment policy based onthe generally accepted accounting indicators, Thisalso supports the results of a previous studies on thephenomenon of earning multiplier.

The EVA measurement is based on the concept of economic profits, which indicates that in order to achievethe value for shareholders; the firm must manage the use

of the available resources to achieve a return on investedcapital greater than the cost of capital, whether owned or Borrowed.

Our research aimed to analyze and study these allegationsand to provide an evidence of the benefit of the EVA, tointerpret the stock returns. We tried to study and analysisthe relationship between a stock return and EVA,addressed the extent of the benefit of the investment policyrelying on the EVA in achieving normal returns comparedwith each one the average market and average returnsachieved by the investment policy based on accountingindicators. The study results showed that the EVA provideda small interpretation for the stock returns, and indicatedthat the composition of investment portfolios containingshares with a high EVA does not necessary lead tohigh returns compared with market return. Furthermore,

these results agreed with the previous studies, which testedthis relationship in the stock markets and the benefit of theinvestment policies adopted to measure the EVA comparedwith the average market return and average returnachieved by the policies adopted indicators of accounting.The results showed the invalidity of the theory that theallegations refer to the benefit of the use of investmentpolicies based on the EVA to achieve average returnsgreater than the average returns achieved by theinvestment policy based on accepted accountingindicators. The results showed that the investment policiesbased on the conventional accounting indicators weresuperior to those policies based on the EVA. In addition,the results showed the possibility of using the investmentpolicy based on generally accepted accounting indicators

to achieving up normal returns compared with the averagemarket return. Our results are consistent with the results of previous studies. In general, the results of our studyprovide practical evidence added to the accumulatedresults of the previous studies, which refers to the lack of

veracity of the theory claims relationship between the EVA,stock prices and stocks returns.

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