Economic Value Added: Some Empirical Evidence

Managerial Finance, Vol. 24, No. 11, 1998

12 Pages Posted: 15 Jun 2011

See all articles by Gary C. Biddle

Gary C. Biddle

University of Melbourne - Faculty of Business and Economics; Columbia Business School; HKU Business School; London Business School

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

James S. Wallace

Claremont Colleges - Peter F. Drucker Graduate School of Management

Date Written: November 1998

Abstract

Like all corporate buzzwords, "economic value added" combines some truth with some chaff. This article presents recent empirical evidence that helps to sort them out. Long known as "residual income," economic value added has been marketed successfully by consultancies in recent years as a management incentive tool. Stern Stewart & Co., has been particularly aggressive in trademarking their version EVA® and in making claims regarding its performance. Independent examination suggests that some of these claims are overstated. While evidence confirms that managers respond to EVA incentives, there is no evidence thus far to support claims that EVA is more closely associated with equity returns or firm values than is net income. Possible reasons are discussed.

Suggested Citation

Biddle, Gary C. and Bowen, Robert M. and Wallace, James S., Economic Value Added: Some Empirical Evidence (November 1998). Managerial Finance, Vol. 24, No. 11, 1998, Available at SSRN: https://ssrn.com/abstract=1864368

Gary C. Biddle (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Level 8, Dept of Accounting
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Melbourne, Victoria 3010 3010
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HOME PAGE: http://https://findanexpert.unimelb.edu.au/profile/774767-gary-biddle

Columbia Business School ( email )

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HKU Business School ( email )

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London Business School ( email )

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Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics ( email )

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HOME PAGE: http://www.chapman.edu/our-faculty/robert-bowen

University of Washington - Foster School of Business ( email )

Box 353226
University of Washington
Seattle, WA 98195-3226
United States
206.334.0911 (Phone)

HOME PAGE: http://foster.uw.edu/faculty-research/directory/robert-bowen/

James S. Wallace

Claremont Colleges - Peter F. Drucker Graduate School of Management ( email )

The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States
(909) 607-6063 (Phone)

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