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Purpose -The purpose of this paper is to test assertions that economic value added (EVA) is more highly associated with stock returns and firm values than accrual earnings, and evaluates which components of EVA, contribute to these associations. Design/methodology/approach -Thirty three non-EVA users and 75 EVA users were selected at random. Variables used in this study were revenues, profits, assets, stockholders' equity, market value, earnings per share, total return to investors, and percentage cost reduction over time. Data were collected on several metrics. Findings -The study suggest that the common and widely accepted metrics used by analysts and calculated for EVA users are not necessarily superior to that of non-EVA users. The evidence support that EVA is somewhat invalid, unreliable, and questionable.Research limitations/implications -The first limitation deals with the measurement of capital invested in assets. The second limitation was the use of an accounting definition of the return on equity. The operating income was not cleansed of any expenses which are really capital expenses (in the sense that they create future value). The operating income was adjusted if any cosmetic effects were identified. The third limitation is the determination of cost of capital (estimate). Discounted cash flow valuation assumes that cost of capital is calculated using market values of debt and equity.Practical implications -This study raises serious doubts about the capacity of EVA to deliver superior metrics. EVA users may be placing themselves at unnecessary risks and costs. Study shows that EVA is not a satisfactory descriptor of the real world and, therefore, it should be used with caution by management consultants, practitioners, and investors. Originality/value -The movement in stock prices reflects something other than EVA.

This research empirically tests the rationale of corporate downsizing of employees as a cost reduction strategy on the long‐run profitability of a corporation. The sample for this study consisted of 185 large publicly‐held US‐based corporations which announced their intentions to downsize during the period 1990‐1992. Over the subsequent ten‐year period (1992‐2001) their returns on investment were obtained and the empirical relationship between downsizing and long‐run profitability was determined. Whether organizations that undergo this type of change appear to be better off than they were before they implemented the process was the focus of this study. The study ascertained that downsizing does not appear to be in the best long‐term interest of the corporation, its employees, or its shareholders, and that the massive job cuts did not lead to strong sustained gains in the price of the stock. Many organizational benefits fail to develop as expected and the benefits are elusive. The findings of this study suggest downsizing does not engender a long‐run productivity gain and it fails as a method to boost shareholder value.

Purpose -For publicly traded firms, calculating the cost of capital is predicated typically on information from the financial markets. Small businesses do not have the necessary market-based information. As an alternative to traditional proxy approaches, this paper argues for a multi-criteria model to determine an appropriate equity risk premium, and thereby, a cost of capital. Design/methodology/approach -The study proposes a multi-criteria model -an analytical hierarchy process (AHP) -to determine the cost of capital for small businesses. Findings -Since the three proxy methods are shown to have numerous shortcomings, the use of the AHP model is clearly a method to determine the equity risk premium and the cost of capital for small businesses.Research limitations/implications -The model requires small business managers to identify all information sources for the required input data. Originality/value -The article offers practical help to lenders and small businesses wishing to invest in new capital projects.