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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: 24 May 2021

Xiaoming He and Ao Chen

This paper aims to explore the impact of a firm’s political connections on its economic value added (EVA) performance while treating connection heterogeneity and product…

Abstract

Purpose

This paper aims to explore the impact of a firm’s political connections on its economic value added (EVA) performance while treating connection heterogeneity and product diversification as moderators.

Design/methodology/approach

Based on data collected from 1,143 Chinese manufacturing listed firms in China’s A-share market from 2012 to 2017, this study conducted panel data analysis to investigate proposed relationships.

Findings

The findings provide evidence that political connections promote EVA performance of enterprises and both connection heterogeneity and product diversification negatively moderate the political connections – EVA performance relationship.

Originality/value

Drawing sights from the resource-based view, this study investigates the influence of corporate political connections on EVA performance, considering contingent factors of connection heterogeneity and corporate strategy (i.e. product diversification). It, thus, contributes to the literature on political connections by providing additional evidence to explaining the inconclusive findings on the political connections–firm performance relationship and extending prior research by emphasizing the moderating roles of connection heterogeneity and corporate strategy. It also complements prior research on EVA performance by exploring its antecedents.

Details

Chinese Management Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1750-614X

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Article
Publication date: 1 December 1999

N Zafiris and R Bayldon

The current search for operational criteria and tests of firm performance is largely focused on the Economic Value Added (EVA) framework. While reasserting the essential…

Abstract

The current search for operational criteria and tests of firm performance is largely focused on the Economic Value Added (EVA) framework. While reasserting the essential soundness of this approach the paper seeks to improve its application by proposing a version of EVA which anchors the opportunity cost of equity capital on market rather than book values. The case for this is argued on general grounds and the resulting model is convenient for examining the possible effects of the gearing factor. The practicability of the model is illustrated by applying the proposed ‘EVA’ formula to a mixed set of accounting and stock market data from a sample of UK companies.

Details

Journal of Applied Accounting Research, vol. 5 no. 2
Type: Research Article
ISSN: 0967-5426

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Article
Publication date: 1 October 2005

J.HvH. de Wet

Several researchers and practitioners, notably Stern Stewart Consulting Company and Associates, have claimed that economic value added (EVA) is superior to traditional…

Abstract

Several researchers and practitioners, notably Stern Stewart Consulting Company and Associates, have claimed that economic value added (EVA) is superior to traditional accounting measures in driving shareholder value. Other researchers have refuted these claims by supplying data in support of traditional accounting indicators such as earnings per share (EPS), dividends per share (DPS), return on assets (ROA) and return on equity (ROE). This study endeavoured to analyse the results of companies listed on the JSE Securities Exchange South Africa, using market value added (MVA) as a proxy for shareholder value. The findings do not support the purported superiority of EVA. The results suggest stronger relationships between MVA and cash flow from operations. The study also found very little correlation between MVA and EPS, or between MVA and DPS, concluding that the credibility of share valuations based on earnings or dividends must be questioned.

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Article
Publication date: 1 July 2006

Ralph Palliam

The purpose of this paper is to test assertions that economic value added (EVA) is more highly associated with stock returns and firm values than accrual earnings, and…

Abstract

Purpose

The purpose of this paper is to test assertions that economic value added (EVA) is more highly associated with stock returns and firm values than accrual earnings, and evaluates which components of EVA, contribute to these associations.

Design/methodology/approach

Thirty three non‐EVA users and 75 EVA users were selected at random. Variables used in this study were revenues, profits, assets, stockholders’ equity, market value, earnings per share, total return to investors, and percentage cost reduction over time. Data were collected on several metrics.

Findings

The study suggest that the common and widely accepted metrics used by analysts and calculated for EVA users are not necessarily superior to that of non‐EVA users. The evidence support that EVA is somewhat invalid, unreliable, and questionable.

Research limitations/implications

The first limitation deals with the measurement of capital invested in assets. The second limitation was the use of an accounting definition of the return on equity. The operating income was not cleansed of any expenses which are really capital expenses (in the sense that they create future value). The operating income was adjusted if any cosmetic effects were identified. The third limitation is the determination of cost of capital (estimate). Discounted cash flow valuation assumes that cost of capital is calculated using market values of debt and equity.

Practical implications

This study raises serious doubts about the capacity of EVA to deliver superior metrics. EVA users may be placing themselves at unnecessary risks and costs. Study shows that EVA is not a satisfactory descriptor of the real world and, therefore, it should be used with caution by management consultants, practitioners, and investors.

Originality/value

The movement in stock prices reflects something other than EVA.

Details

Review of Accounting and Finance, vol. 5 no. 3
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 1 January 2005

Jan Mouritsen

This paper discusses how organisational transformation is situated between design and mobilisation of management control systems. Change occurs even after implementation…

Abstract

This paper discusses how organisational transformation is situated between design and mobilisation of management control systems. Change occurs even after implementation and design can transform organisational action to the point where organisations may run wild. The procedures developed by the design are actors that over time can transform organisations radically, and this calls for others to intervene into the effects of the design. This is mobilisation where managers intervene and supplement the design with processes and procedures that take the edge in terms of unintended effects away from the designs. Therefore, the mobilisation of the design is oriented towards its rectification so that it is possible to live with it. It is suggested that design can create effects that are highly nonintuitive and that ongoing mobilisation is added all the time. Economic value Added and balanced scorecard are used as examples in this discussion, and a small empirical illustration is provided.

Details

Journal of Accounting & Organizational Change, vol. 1 no. 1
Type: Research Article
ISSN: 1832-5912

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Article
Publication date: 1 November 1998

Gary C. Biddle, Robert M. Bowen and James S. Wallace

Traces the growth in the use of economic value added (EVA, previously known as residual income) and uses two previous research studies to assess some claims for its…

Abstract

Traces the growth in the use of economic value added (EVA, previously known as residual income) and uses two previous research studies to assess some claims for its merits. Compares EVAs ability to explain stock returns with that of earnings before extraordinary items (EBEI) and cash flow using 1984‐1993 US data; and finds EBEI is most closely related. Examines EVAs incentive effects on management investing, financing and operating decisions and shows that, although EVA users decreased new investment, increased dispositions of assets, increased share repurchases, used assets more intensively and increased residual income, market reactions to this were weak. Suggests possible reasons for this and concludes that EVA may align management incentives with shareholders’ interests but this does not necessarily increase shareholder value.

Details

Managerial Finance, vol. 24 no. 11
Type: Research Article
ISSN: 0307-4358

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Case study
Publication date: 20 January 2017

Kenneth M. Eades, Jay Caver and Jennifer Hill

This case serves as an introduction to the concept of economic value added (EVA). The student is placed in the position of Valmont's CFO to decide whether EVA can live up…

Abstract

This case serves as an introduction to the concept of economic value added (EVA). The student is placed in the position of Valmont's CFO to decide whether EVA can live up to its promise to motivate managers to act like shareholders and ultimately lead them to make value-enhancing decisions that can reverse Valmont's weak earnings and lackluster stock-price performance. The case works best if students are acquainted with the concepts of cost of capital and net present value. The teaching note that is available for registered faculty explains how to incorporate the accompanying six-minute video supplement.

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: 23 October 2007

George Athanassakos

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…

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.

Details

Management Decision, vol. 45 no. 9
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 1 March 2004

This paper considers firstly whether EVA® meets the objectives of benefit sharing and secondly, whether it can assist in achieving integration within the decentralised…

Abstract

This paper considers firstly whether EVA® meets the objectives of benefit sharing and secondly, whether it can assist in achieving integration within the decentralised organisation. The empirical evidence presented is based on case study investigation of three New Zealand organisations, one quoted firm and two state‐owned enterprises, from a management accounting perspective. The results demonstrate firstly that EVA® can help to promote the benefit sharing philosophy through the use of value drivers, although benefit sharing was not the sole motivation for EVA® implementation. Secondly, integration is not necessarily achieved within the organisation. The use of EVA® can actually hinder vertical linkages within the firm, if decentralised units demonstrate a high degree of economic dependence. Integration between ex ante and ex post measures of EVA® is inhibited by a lack of understanding of the measure. Furthermore, integration between shareholder and managerial objectives is hindered by managerial selfinterest and action may be necessary to eliminate goal incongruence. Finally, the case study methodology is ideal for the study of EVA®, as it provides finer quality information than external analysis at the firm level, leading to more robust conclusions concerning the range of acceptable approaches to the philosophy of EVA®, and its evolution over time.

Details

Pacific Accounting Review, vol. 16 no. 1
Type: Research Article
ISSN: 0114-0582

Keywords

1 – 10 of over 2000