Economic Value Added and Stock Market Liquidity



The Purpose of business entity is to maximize shareholders wealth by enhancing the firm’s value thus, getting expected returns are very important for them. Investors and creditors are going to find a precise scale for measuring overall performance of a firm as a whole to decide whether to invest in the firm, to continue with the firm or to exit from it. Economic Value Added (EVA) is an analytical tool for detecting of a true enterprise value of the firm. On the other hand EVA is a substitute for accounting profit as a scale for measuring overall performance. In this paper, we attempt to present a framework that shows how stock market liquidity and economic value added variables have effected on enterprise value, investigate the relation between them. In this framework, lower cost of capital and high EVA arise from improvement of performance and liquidity. The empirical analysis uses a panel data of 154 companies listed on the Tehran Stock Exchange from 1383 and 1388. Results show that there has been positive and significant relation between EVA and Liquidity. Also we find significant correlation between these variables and enterprise value that it shows these variables are interacting with each other.