Value‐based management, EVA and stock price performance in Canada

Abstract

Purpose

The purpose of this paper is to determine the extent to which Canadian companies have embraced value‐based management (VBM) methods, identify the characteristics of these companies and of the executives responsible for the introduction of VBM in their organisations and assess the stock price performance of the companies that use VMB vs. those that do not.

Design/methodology/approach

The study is based on a survey of CEOs of a large sample of Canadian companies and examines the relation of a number of explanatory variables, including stock price performance, to the probability of using VBM versus not using VBM via a regression analysis of qualitative choice, namely logit analysis.

Findings

The study finds that value‐based management methods are widely used in Canada, with the likelihood of usage being higher for larger companies with younger and more educated executives with an accounting/finance background. The statistical analysis that follows the tabulation of survey results indicates companies that used EVA had a better stock price performance than those not using EVA. Moreover, our logit regression analysis shows that companies with better stock market performance exhibited higher likelihood of using EVA.

Practical implications

The study implies that the lower usage of EVA in Canada, especially at the corporate level, provides some explanation for the stock market under‐ performance of the Canada market vis‐à‐vis the USA in the 1990s.

Originality/value

To our knowledge, this study serves as the first widespread evaluation of VBM methods in Canada and their effect on company and stock price performance.

Citation

Athanassakos, G. (2007), "Value‐based management, EVA and stock price performance in Canada", Management Decision, Vol. 45 No. 9, pp. 1397-1411. https://doi.org/10.1108/00251740710828663