Performance Evaluation, Economic Value Added and Managerial Behaviour
PES Business Review, Vol. 1, No. 1, January 2006
7 Pages Posted: 14 Nov 2006
For the past two decades many countries started transforming their economies from traditional protected ones to those of more liberalized, globalized and market driven. This period has also seen the economies becoming more knowledge oriented and Human Resources started assuming more prominence in the growth of the economies and businesses posing a greater challenge for companies to acquire and retain talented workforce (especially at the strategic & managerial levels).
The knowledge economy also started witnessing the rapid rise of the agency problem- conflict of interest between managers and owners. So it is very essential to align the interests of the mangers and shareholders or at least reduce the difference between them. In this regard Economic Value Added has been seen as better alternative to the stock price and traditional performance measures.
While successful EVA stories in the west are quite encouraging, Corporate India is slowly catching up the EVA adoption. 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, Managerial Behaviour, Performance
JEL Classification: G00, J33, L21, M40, M52
Suggested Citation: Suggested Citation