In this study stock return (SR) is a dependent variable. Stock return is the total earning derived from investment in a given period divided on investments made in the period. According to Davvani, stock return is the change in the value of the shares in the end of given period, compare to begging of the same period, that this change in value is due to the change in the price plus any dividends paid.
According to Jahankhani and Sajjadi the criteria related to determine companies value and managers performance can be divided into two categories: (i) Accounting measures (ii) economic measures.
In economic models, the firm value is a function of profitability power, potential investment, and the difference between rate of return and cost of capital.
In recent years, various concepts have been proposed for measuring the residual income. Use of market value and book value for calculating the cost of capital has had a dramatic difference in results. Economic performance evaluation measures involve; economic value added (EVA), refined economic value added (REVA), EVA momentum, cash value added (CVA), and market value added (MVA). The most of economic measures involve; economic value added (EVA), refined economic value added (REVA), market value added (MVA), cash value added (CVA), and free cash flow (FCF). In this study economic value added (EVA), refined economic value added (REVA), and EVA Momentum selected as economic performance measures.
The famous economist Alfred Marshall was the first to speak about the concept of economic profit as performance criteria in 1890, where the cost of invested capital is also deducted from profit to estimate the real or economic profit of a company. The economic profit is also the Residual Income (RI). Stewart introduced the concept of Economic Value Added (EVA) in 1991 and it is registered as the trademark (EVA™) of the Stern Stewart consulting organization. The equation for EVA is based on the equation for RI, but specific definitions are given to income, required rate of return and investment, in order to eliminate undesirable accounting conventions. The idea is to convert the accounting profit (value) in the financial statements to an economic profit (value).
Theoretically it can be proved that EVA is superior to other measures of performance (excluding residual income) on the grounds that it accounts for the full cost of capital, including the cost of equity. It is therefore a pure economic profit, meaning that it reflects the full cost of the limited (capital) resources used by a company during a given period. Whether EVA is a new concept or not is debatable because the residual income measure, introduced many years prior to EVA, is conceptually the same. The difference between EVA and residual income lies in the adjustments required for the net assets and operating profits for the calculation of EVA.
EVA is a revised version of ResiduDe Income (RI) with a difference the way the economic profit and the economic capital are calculated. The economic value added is a good indicator both for the retrospective evaluation of performances (the economic value added for the historical period) and also for prospective evaluation of performances (the economic value added for the future period). From the point of view of the shareholders; EVA represents their wealth creation source, one that results from the activity domain of the firm, after the remuneration the state and all capital providers are remunerated.