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EVA & MVA as performance measures and signals for strategic change

Kenneth Lehn (Professor of Business Administration and Director of the Center for Research on Contracts and the Structure of Enterprise in the Katz Graduate School of Business Administration at the University of Pittsburgh.)
Anil K. Makhija (Associate Professor of Business Administration in the Katz Graduate School of Business Administration at the University of Pittsburgh.)

Strategy & Leadership

ISSN: 1087-8572

Article publication date: 1 March 1996

2552

Abstract

The increasing frequency with which the business environment demands strategic change elevates the role played by performance measures in assessing alternative business strategies. Traditional accounting measures of performance have long been criticized for their inadequacy in guiding strategic decisions. Two alternative measures of business performance, EVA (eco‐nomic value added) and MVA (market value added) have been attracting much attention of late. According to a recent article in Fortune, EVA is employed by a large number of firms, including Coca‐Cola, AT&T, Quaker Oats, Eli Lilly, Georgia Pacific, and Tenneco. Unlike traditional accounting measures of performance, EVA attempts to measure the value that firms create or destroy by subtracting a capital charge from the returns they generate on invested capital. In addition to their use as performance measures, EVA and MVA are recommended by some as metrics for executive compensation plans and the development of corporate strategies.

Citation

Lehn, K. and Makhija, A.K. (1996), "EVA & MVA as performance measures and signals for strategic change", Strategy & Leadership, Vol. 24 No. 3, pp. 34-38. https://doi.org/10.1108/eb054556

Publisher

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MCB UP Ltd

Copyright © 1996, MCB UP Limited

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