EVA: Does Size Matter?

Janet Hamilton, Shafiqur Rahman () and Alice C. Lee
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Janet Hamilton: School of Business Administration, Portland State University, Portland, OR 97201, USA
Shafiqur Rahman: School of Business Administration, Portland State University, Portland, OR 97201, USA
Alice C. Lee: Department of Finance, San Francisco State University, San Francisco, CA 94132, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2009, vol. 12, issue 02, 267-287

Abstract: Value-added performance measures, such as economic value added (EVA), are promoted as a means to better align managerial incentives and improve firm performance. This paper empirically examines whether EVA adopters outperform a peer group of non-adopters over a long term horizon. It also explores the determinants associated with differences in relative market performance of these two groups. We find mixed results consistent with previous studies. In examining risk adjusted market returns, we find that the full sample significantly underperforms the market. However, during the period of the study, EVA adopters exhibit less negative performance than non-adopters. Moreover, over the entire study period, adopter performance improves in a positive direction, while non-adopters experience a performance decline. Adopting firms also exhibit higher earnings growth and higher returns. In perspective, these results suggest there is some benefit to EVA adoption, relative to a peer group, as adopters outperform their peer group. In a comparison of peer matched groups, firm size and growth opportunities are found to have a significant impact on performance for three size-based groups.

Keywords: Economic value added; market value added; value-added performance; size; buy and hold compound monthly returns; market model abnormal returns (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2009
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219091509001629

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