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Case study
Publication date: 20 January 2017

Kenneth M. Eades, Martson Gould and Jennifer Hill

The student's task is to develop a comprehensive strategy for Briggs & Stratton, which is facing severe competition and margin pressures. A major component of the strategy…

Abstract

The student's task is to develop a comprehensive strategy for Briggs & Stratton, which is facing severe competition and margin pressures. A major component of the strategy to be considered is whether to implement economic value added (EVA) as a new performance measurement for management. The case is designed to serve as an introduction to how to compute and use EVA. It emphasizes the importance of performance evaluation as part of a larger strategic plan. A teaching note is available to registered faculty, as well as two video supplements to enhance student learning.

Details

Darden Business Publishing Cases, vol. no.
Type: Case Study
ISSN: 2474-7890
Published by: University of Virginia Darden School Foundation

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Article
Publication date: 1 September 2009

Nopadol Rompho

This paper attempts to propose the uses of a capital budgeting tool, the Economic Value Added (EVA)for a university. Although there are reports of widespread use of the EVA

Abstract

This paper attempts to propose the uses of a capital budgeting tool, the Economic Value Added (EVA)for a university. Although there are reports of widespread use of the EVA in many for‐profit organisations, there is no evidence in literature that it has been adopted as a capital budgeting tool for a university. In this paper the application of the EVA for a university is proposed. It shows how the EVA can increase the awareness of the importance of asset utilisation in universities and guide universities to better resource management. EVA is proposed for use in a university setting in two different segments: for‐profit and non‐profit. The EVA has been adjusted with a new measure, Academic Value Added Ratio (AVAR) to reflect the university’s objective. The perception of academic staff in the case study university in Thailand with regards to the concept of applying the EVA to a university is further investigated. The results indicate that most members of management staff do not oppose this concept if it is implemented in a proper way.

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Journal of Financial Reporting and Accounting, vol. 7 no. 2
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 6 October 2020

Danila Ovechkin, Natalia Boldyreva and Vladimir Davydenko

The aim of this paper is to propose extended intellectual capital (IC) indicators. The study shows that the essence of IC in the context of value is residual income, its…

Abstract

Purpose

The aim of this paper is to propose extended intellectual capital (IC) indicators. The study shows that the essence of IC in the context of value is residual income, its growth rate and growth rate of equity taken together. It allows creating IC measures (modified residual income and economic value added of equity) that contain these components. The study investigates the relationship between IC and market value for Russian public firms.

Design/methodology/approach

The authors propose modified residual income and modified economic value added of equity as IC metrics. This study tests a relationship between market value and IC to investigate suggested metrics. Static and dynamic panel data models are used. 25 companies from the MOEX Russia Index were included in the study. The study covers the period from 2014 to 2018.

Findings

The findings show a strong positive relationship between market value and IC. The results confirm that extended IC measures have a stronger connection to market value.

Practical implications

Firstly, these results benefit managers. They can use proposed extended IC measures as targets for the company when planning business strategy and generating business environment. Secondly, suggested IC measures can help shareholders and investors achieve their long-term goal – wealth maximization.

Originality/value

The value of this article is the development of IC theory and valuation. The proposed measures differ in the way that they consider the growth rates – the main determinants of value along with efficiency.

Details

Journal of Economic Studies, vol. 48 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 October 2004

Kim Hiang Liow and Joseph T.L. Ooi

This study examines the influence of corporate real estate (CRE) on shareholder value using two value‐based measures: economic value added (EVA) and market value added…

Abstract

This study examines the influence of corporate real estate (CRE) on shareholder value using two value‐based measures: economic value added (EVA) and market value added (MVA). We find that CRE has impacted negatively on non‐real estate firms' EVA and MVA in the period 1997‐2001. This happens for the non‐real estate corporations from different industries. Further, the higher the real estate asset intensity, the greater the negative impact on the firms' EVA and MVA. Our results have important implications for the traditional notion that there is a competitive advantage in owning CRE by diversified conglomerates. Specifically, more studies are needed to explore and compare the main reasons and motivations as to why Asian non‐real estate firms are still more involved with real estate activities than their counterparts in Europe and USA even though ownership of CRE appears to destroy shareholders' wealth.

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Journal of Property Investment & Finance, vol. 22 no. 5
Type: Research Article
ISSN: 1463-578X

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Article
Publication date: 4 September 2009

Reza Kouhy, Rishma Vedd, Takeo Yoshikawa and John Innes

The purpose of this paper is to examine the relationships between human resource (HR) policies, management accounting and organisational performance in Canada, Japan and the UK.

Abstract

Purpose

The purpose of this paper is to examine the relationships between human resource (HR) policies, management accounting and organisational performance in Canada, Japan and the UK.

Design/methodology/approach

A cross case analysis of the observations emerging from each of six case studies (two in Canada, two in Japan and two in the UK) result in a set of 13 findings.

Findings

The seven main HR policies emerging from this study are the “job for life” (in one British and two Japanese cases), recruitment, training, performance‐related bonus scheme, teamwork, organisational culture and pensions. Important communication links between HR managers and management accountants are budgets, strategic plans, performance‐related bonus scheme and decision making. The “job for life” policy, employee recruitment decisions, viewing employees as assets (rather than costs), training, performance‐related bonus scheme, teamwork, organisational culture and a good pension scheme all had an impact on organisational performance.

Research limitations/implications

It is very difficult to link specific HR policies with changes in organisational performance because of the number of other variables affecting organisational performance and the time lags involved.

Originality/value

Several of the case studies are making real progress in establishing links between specific HR policies and changes in organisational performance by using benchmarking or employee opinion surveys or a combination of the results of both external benchmarking and employee opinion surveys over a number of years.

Details

Journal of Human Resource Costing & Accounting, vol. 13 no. 3
Type: Research Article
ISSN: 1401-338X

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Article
Publication date: 27 September 2019

Cherif Guermat, Ismail U. Misirlioglu and Ahmed M. Al-Omush

This study aims to examine the long-term effects of adopting economic value added (EVA) as a compensation tool on managers’ behaviour.

Abstract

Purpose

This study aims to examine the long-term effects of adopting economic value added (EVA) as a compensation tool on managers’ behaviour.

Design/methodology/approach

The authors extend the sample used in prior studies both in the time and the cross-section dimensions.

Findings

The study conclusions are distinct from those offered by existing studies. The authors show that EVA adopters, relative to non-EVA adopters, increase the working capital cycle, use their assets less intensively and decrease their payouts to shareholders via a decrease in dividends and share repurchases. In investing decisions, the authors find a decrease in new investments, but no change in asset dispositions after the adoption of EVA compensation plans.

Originality/value

The study results highlight that the EVA adoption provides more incentives to reduce the total cost for capital rather than increasing operations and maximising shareholder wealth. The results also have implication for corporate management, particularly in the area of management compensation scheme design.

Details

Accounting Research Journal, vol. 32 no. 3
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 1 December 2000

Rhoda Pierce‐Brown BA FCA PhD

The basis of this paper is a critical review of an article published in this journal, by Zafiris and Bayldon (JAAR, 5, 2, 2000), on Economic Value Added and Market Value…

Abstract

The basis of this paper is a critical review of an article published in this journal, by Zafiris and Bayldon (JAAR, 5, 2, 2000), on Economic Value Added and Market Value Added. This review provides a detailed critique of the literature relating to EVA® and the underlying philosophy of the use of EVA® as a performance metric. Following this, there is a comment on the analysis provided by Zafiris and Bayldon and a review of the empirical evidence presented in support of their analysis. The paper demonstrates that the amendments to the EVA® model proposed by Zafiris and Bayldon are not original and are unlikely to result in a significant improvement to the usefulness of the original model.

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Journal of Applied Accounting Research, vol. 6 no. 1
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 18 October 2019

Jie Zhang and Ahmed Aboud

The purpose of this paper is to examine the determinants of the EVA performance evaluation model for the Chinese banking industry. The authors investigate the impact of…

Abstract

Purpose

The purpose of this paper is to examine the determinants of the EVA performance evaluation model for the Chinese banking industry. The authors investigate the impact of six bank-specific factors and corporate governance factors on financial performance.

Design/methodology/approach

The authors use the ordinary least square regression to examine the determinants of the EVA performance evaluation model for the Chinese banking industry. The findings are generally robust to alternative proxies of performance.

Findings

The empirical results indicate that credit risk, operational efficiency and the degree of innovation are positively related to banks’ EVA while capital management has a negative impact on it. In addition, although board size and independent directors are not related to the bank’s EVA, from the perspective of the traditional performance evaluation indicators, executive compensation has a positive impact on the bank’s profitability.

Research limitations/implications

This paper has some limitations. First, due to the large number of adjustments to accounting items are required in the application of EVA when evaluating business performance, some items of the EVA model in this paper have been simplified, which may cause the bank’s EVA value to deviate slightly from the actual situation. Moreover, the sample includes only listed banks, so our results cannot generalize to non-listed banks, such as some small- and medium-sized commercial banks.

Originality/value

This paper contributes to the limited body of literature concerning the use and the determinants of EVA in emerging markets. The authors construct an EVA model which is suitable for China’s banks and reports comprehensive evidence on the drivers of EVA as a measurement tool.

Details

Asian Review of Accounting, vol. 27 no. 4
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 1 January 2001

Andrew C Worthington and Tracey West

With increasing pressure on firms to deliver shareholder value, there has been a renewed emphasis on devising measures of corporate financial performance and incentive…

Abstract

With increasing pressure on firms to deliver shareholder value, there has been a renewed emphasis on devising measures of corporate financial performance and incentive compensation plans that encourage managers to increase shareholder wealth. One professedly recent innovation in the field of internal and external performance measurement is a trade‐marked variant of residual income known as economic value‐added (EVA). This paper attempts to provide a synoptic survey of EVA's conceptual underpinnings and the comparatively few empirical analyses of value‐added performance measures. Special attention is given to the GAAP‐related accounting adjustments involved in EVA‐type calculations.

Details

Asian Review of Accounting, vol. 9 no. 1
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 1 January 2005

Janis K. Zaima, Howard F. Turetsky and Bruce Cochran

Studies that examine the relationship of economic value added (EVA) to market value did not isolate the EVA effect in conjunction with controlling for the economic effect…

Abstract

Studies that examine the relationship of economic value added (EVA) to market value did not isolate the EVA effect in conjunction with controlling for the economic effect of the market. Since the EVA metric is viewed as value‐added apart from the market, operational managers will benefit from a procedure that separates the market driven versus firm driven (EVA) effects. Our paper examines the effects of the economy and EVA on MVA. The results indicate that EVA and GDP significantly affect MVA. Furthermore, the MVA‐EVA relationship shows a systematic bias between the largest MVA firms and the smallest MVA firms. Overall, our study provides implications for corporate executives utilizing EVA to evaluate managerial performance linked to MVA.

Details

Review of Accounting and Finance, vol. 4 no. 1
Type: Research Article
ISSN: 1475-7702

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