Eva: The Right Measure of Managerial Performance?
Indian Journal of Accounting & Finance, Vol. 119, No. 02, April-September 2005
10 Pages Posted: 14 Nov 2006
One of the major problems the limited companies face is the conflict of interest between managers and owners - generally known as 'the agency problem'. It is very essential to align the interests of the mangers and shareholders or at least reduce the difference in interests. In this regard Economic Value Added has been seen as better alternative to the traditional performance measures - Profits, EPS, ROCE and ROE etc. While successful EVA stories in the west are quite encouraging, empirical research is not sufficient to establish the claim of EVA as a better measure. However there is also not much research to prove it otherwise. In case of India either way research is very inadequate. Although not a panacea, EVA based compensation plans will drive managers employ a firm's assets more productively and EVA should help reduce the difference in the interests of the managers and shareholders, if not perfectly align them.
Keywords: EVA, Residual Income, Performance Evaluation
JEL Classification: G00, J33, L21, M40, M52
Suggested Citation: Suggested Citation