THE VIABLE EVA CENTER (OR, HOW TO SLICE A COMPANY SO IT DOESN'T BLEED)

Marc Hodak

Journal of Applied Corporate Finance, 2000, vol. 13, issue 3, 71-79

Abstract: How a company is sliced, or broken up into divisions of various sorts, has a huge effect on the accountability and hence the behavior of its managers. Senior management faces a tradeoff between delegating authority to subordinates who have the best information for specific decisions, and maintaining authority to avoid parochial behavior that might hurt the organization as a whole. Divisions exist within companies to provide a framework for such delegation. A divisional structure allows decision‐making authority to be pushed down along with accountability for results. Thus, how divisions are established is critical to decision‐making, motivation, and accountability. The ultimate test of a well‐formed division is a high degree of correspondence between division financial results and financial results for the company as a whole. When an increase in divisional EVA can contribute to a decline in company‐wide EVA, this is evidence of a poorly formed division, or what the author calls a “non‐viable” EVA center. This article provides a framework for defining a “viable EVA center” as well as three ways of making existing divisions more viable: (1) use of transfer pricing and intrafirm charges; (2) reorganization; and (3) aggregation of divisional results.

Date: 2000
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/j.1745-6622.2000.tb00067.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jacrfn:v:13:y:2000:i:3:p:71-79

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1078-1196

Access Statistics for this article

Journal of Applied Corporate Finance is currently edited by Donald H. Chew Jr.

More articles in Journal of Applied Corporate Finance from Morgan Stanley
Bibliographic data for series maintained by Wiley Content Delivery ().