EVA as a measure for shareholder value and executive compensation - A critical view

Inhaltsverzeichnis (Table of Contents)

• Abstract
• Acknowledgements
• Statement of Original Work
• Abbreviations
• Chapter 1: Introduction
• 1.1 Motivation
• 1.2 Problem Definition
• 1.3 Research Objectives
• 1.4 Research Methodology
• 1.5 Structure of the Paper
• Chapter 2: Economic Value Added - Concepts and Calculations
• 2.1 Introduction
• 2.2 The Theoretical Framework
• 2.2.1 Residual Income
• 2.2.2 Economic Profit
• 2.3 The EVA Framework
• 2.4 Criticisms of the EVA Concept
• 2.4.1 Accounting Adjustments
• 2.4.2 Calculation of the Cost of Capital
• 2.4.3 Divisional Level Performance
• 2.4.4 The Use of EVA for Incentive Compensation
• Chapter 3: The Impact of EVA on Firm Value
• 3.1 Introduction
• 3.2 Theoretical Framework
• 3.3 Empirical Studies on EVA
• 3.3.1 Studies Focused on Stock Returns
• 3.3.2 Studies Focusing on the Relationship between EVA and Market Value
• Chapter 4: EVA and Executive Compensation
• 4.1 Introduction
• 4.2 Theoretical Framework
• 4.3 Empirical Studies on EVA and Executive Compensation
• 4.3.1 Studies on EVA as a Performance Measure
• 4.3.2 Studies on the Influence of EVA on Executive Compensation
• Chapter 5: Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper examines the effectiveness of economic value added (EVA) as a performance measure for both shareholder value and executive compensation. The study aims to critically assess EVA's ability to predict stock returns and its influence on managerial behavior.

• The theoretical foundation of EVA and its relationship to other performance measures, such as residual income and economic profit.
• The impact of EVA on firm value, considering both empirical studies on stock returns and market value.
• The influence of EVA on executive compensation, examining its use as a performance measure and its impact on managerial incentives.
• Criticisms of EVA, including its reliance on accounting adjustments, the calculation of the cost of capital, and its ability to capture divisional performance.
• The overall value and effectiveness of EVA as a performance measure, considering both its potential benefits and drawbacks.

Zusammenfassung der Kapitel (Chapter Summaries)

This section provides a summary of each chapter.

• Chapter 1: Introduction Introduces the topic of EVA and its potential benefits and limitations as a performance measure. It defines the research objectives, outlining the key questions to be addressed. This chapter also presents the research methodology and the structure of the paper.
• Chapter 2: Economic Value Added - Concepts and Calculations Discusses the theoretical framework of EVA, explaining its relationship to residual income and economic profit. It delves into the calculations involved in calculating EVA and explores criticisms surrounding the concept, such as accounting adjustments, the cost of capital, divisional performance, and the use of EVA for incentive compensation.
• Chapter 3: The Impact of EVA on Firm Value Examines the theoretical and empirical evidence regarding the impact of EVA on firm value. It discusses studies focusing on stock returns and market value, providing an overview of the existing research findings.
• Chapter 4: EVA and Executive Compensation Analyzes the relationship between EVA and executive compensation, exploring its use as a performance measure and its impact on managerial incentives. This chapter presents empirical studies investigating the influence of EVA on executive compensation and its overall effectiveness in aligning managerial and shareholder interests.

Schlüsselwörter (Keywords)

This paper focuses on the use of economic value added (EVA) as a measure for shareholder value and executive compensation. The central concepts explored include residual income, economic profit, firm value, stock returns, executive compensation, and managerial incentives. Key aspects of EVA, such as accounting adjustments, the cost of capital, and its ability to capture divisional performance, are also discussed.