EVA – Advanced method for performance evaluation in banks

Gabriela Popa (), Laurentiu Mihailescu () and Codin Caragea ()
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Gabriela Popa: The Bucharest Academy of Economic Studies, Romania
Laurentiu Mihailescu: The Bucharest Academy of Economic Studies, Romania
Codin Caragea: OTP Bank, Bucharest, Romania

Economia. Seria Management, 2009, vol. 12, issue 1 Special, 168-173

Abstract: EVA (Economic Valued Added) is a modern financial measurement tool that determines if a business is earning more than its true cost of capital. Including a cost for the use of equity capital sets EVA apart from more popular measures of bank performance, such as return on assets (ROA), return on equity (ROE), net banking income and the efficiency ratio, which do not consider the cost of equity capital employed. As a result, these measures may suggest a bank is performing well, when in fact it may be diminishing its value to its shareholders. EVA is a tool that focuses on maximizing shareholder wealth. EVA is an appropriate tool for motivation system and in this way it motivates managers to think like owners; and provides a common language within the corporate culture. The EVA application in banks is relatively new (it started to be implemented in U.S. in 1994) and is not as well known as other measures of bank performance. As in the Romanian Banking system this measurement method is not familiar or used, the purpose of this study is to introduce EVA and its advantages compared to other performance indicators and based on this study to try to implement it in one of the Romanian banks.

Keywords: performance measures; EVA; shareholder value; banks; motivation system (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 M21 M41 O31 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:rom:econmn:v:12:y:2009:i:1special:p:168-173

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