Capital returns, costs and EVA for Canadian firms

The economic value added or EVA of publicly traded nonfinancial Canadian firms over the period, 1961–2003, is not material based on the Fama–French (1999) methodology. Consistent with integrated capital markets and segmented product markets, returns on investments at cost (i.e., the return delivered by the corporate sector), unlike returns on value (i.e., the returns required by investors) and EVA, are significantly higher for domestic-only-listed versus cross-listed Canadian firms. Cost-of-equity estimates range from 9.09% (Utilities) to 11.05% (ALL) to 12.39% (Consumer Stapes). Both the return delivered by the IT sector and the returns required by investors embody a significantly negative abnormal component that strongly suggests that our cost-of-capital estimates are significantly downwardly biased for the IT sector. Two GICS sectors (IT and Health Care) exhibit significant negative EVA after adjusting for replacement costs or risk.