Economic Value Added (EVA) - Literature Review and Relevant Issues

Abstract

<p class="MsoNormal" style="margin: 0cm 0cm 4pt; line-height: 12pt; mso-line-height-rule: exactly;"><span style="font-size: 10pt;" lang="EN-US"><span style="font-family: Times New Roman;">This paper aims to present a narrative literature review of 112 papers published on the EVA from 1994 to 2008. It provides a classification scheme, identifies the gaps in existing literature and suggests the direction for future research. Studies are classified and presented on the basis of the time period, issues covered, distribution of literature in various sources, methodology used, country-wise publications and contributions made by the researchers on the concept. The studies conducted in the developed countries have largely been found to be supporting EVA though there are certain studies in these countries too that consider conventional measures as better tools of corporate performance reporting. However, in developing economies less numbers of studies are available supporting the empirical validity of the concept as a corporate performance measurement tool. The concept of EVA has gained significant attention in the advanced economies, but implementation issues and its validity is under debate all over the world. The paper presents a comprehensive literature review and a critical analysis to move towards the advances in EVA. It may be a very useful source of information to the researchers and managers who wish to understand and implement EVA and carry out further research on the diverse issues of this interesting and value adding performance metric.</span></span></p

Value creation measures: an industry-based study

“…Numerous studies had been undertaken to identify the measure that best expresses shareholder value creation. Sharma and Kumar (2010) list the results of 112 studies on EVA, and Hall (2013;2016) discusses the results of 18 studies published between 1991 and 2011 on shareholder value creation measures. The results of these studies vary and seem to be a function of the shareholder creation measure used, the sample under scrutiny, the country of origin of the data and the statistical technique.…”

EVA as Superior Performance Measurement Tool

“…Al- Amin & Hossain (2004) [23] observe that not a single company use EVA as a performance measure to evaluate internally in Bangladesh. Nonetheless, concept of EVA has gained popularity all over the world particularly in US, UK and European countries as companies started to use EVA as an internal as well as external performance measure due to the fact that it is consistent with the organizational objective of shareholder's value creation (Sharma & Kumar, 2010 [and] is almost 50% better than its closest accounting-based competitor [Earnings per share (EPS), Return on Equity (ROE) and Return on investment (ROI)] in explaining changes in shareholder wealth". On the other hand, the traditional performance measurement tools (ROI, RONA, and ROCE, ROIC) fail to assess the true economic return of a firm, as they all are based on the historical values (Haque, Akter & Shil, 2004).…”

“…Issham argues that since the 1997/1998 crisis Malaysia is suffering for a most suitable performance measure tool which can help the investors in assessing value created on their investment. According the study conducted by Sharma & Kumar (2010) there are only 23 articles published in Brazil, Russia, Indonesia, New Zealand and Malaysia over last ten years. This survey reflects that there is very minimal research conducted on EVA in Malaysia.…”

“…There is no single accounting measure which explains the variability in shareholders wealth (Chen & Dodd, 1997) [18]. Sharma & Kumar (2010) argues that the financial measure is being used in measuring financial performance is to be correlated with shareholders wealth. EVA is claimed to be the concept which gives the true economic profit of the firm and the value created for the shareholders.…”

The Impact of the General Level of Prices and Operating Profit on Economic Value Added (EVA) (Analytical Study: ASE 2001 - 2015)

“…A paper for (Sharma and Kumar, 2010) presented a comprehensive literature review and a critical analysis to move towards the advances in EVA. It may be a very useful source of information to the researchers and managers who wish to understand and implement EVA and carry out further research on the diverse issues of this interesting and value adding performance metric, he finds that The studies conducted in the developed countries have largely been found to be supporting EVA though there are certain studies in these countries too that consider conventional measures as better tools of corporate performance reporting.…”