Does EVA Beat Earnings? Round 2: Evidence from Internet Companies

Abstract
In this research proposal, we seek to contribute to the current debate between earnings and EVA by attempting to show that EVA is a better measure of firm performance in certain circumstances. We argue that the Internet sector provides an appropriate research setting given its relatively high marketing, advertising and R&D expenses, which will result in high divergence between earnings and EVA measurements. Suspecting that some of the expenses should be capitalized in the balance sheet instead prompts us to hypothesize that EVA can better reflect the underlying market activity and the performance of the firms. In addition to our main regression test, two further tests on firm type effects and EVA response coefficient are designed to provide more evidence on our results that EVA is a better measure over other earnings based measure. Key words: Internet stocks; Economic Value Added (EVA); Earnings; Performance measurement