Fundamentals explain less of the variation in TRS than in market-valuet-o- book-value or market-value-to-earnings ratios (as measured by the R2 shown in Exhibits 15.7 and 15.10). This holds true even when TRS is measured over 10-year periods. Why is TRS less clearly linked to fundamentals?

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EXHIBIT 15.7 Market Value, ROIC, and Growth: Regression Analysis Largest global companies by market capitalization (excluding financial institutions) Independent variable (t-statistics in parentheses) Growth R (percent) Sample size 2,016 Dependent variable Constant ROIC? Market value/earnings 8.03 1.24 35.60 26 (48.149) (3.749) (25.661) Market value/capital' 1.12 10.61 25.45 36 2,054 (6.129) (28.487) (18.156) Market value/capital ROIC <7.5% 1.79 21.79 14 386 (4.419) (7.900) 7.5% < ROIC < 15.0% 2.24 4.68 568 (31.00) (6.340) 15.0% < ROIC s 25.0% 3.06 12.54 469 (16.537) (6.480) 25.0% < ROIC < 50.0% 6.18 14.43 7 401 (21.360) (5.570) ROIC > 50.0% 10.36 56.44 22 230 (11.145) (8.080) 7.