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Does It Pay to Implement a Full-Scale EVA Management System?
Evidence from Brazilian Companies

17 Pages Posted: 28 Mar 2003  

Jose Guilherme C. Souza

Vinci Partners

Peter Jancso

Stern Stewart & Co - Sao Paolo

Date Written: January 2003


The goal of this study is to compare and contrast the market performance of Brazilian companies that have implemented a full scale EVA financial management system under Stern Stewart & Co. guidance with that of the broad national stock market index, the Ibovespa index and also a comparison against a portfolio of comparable companies.

In the US, several academic papers have been published on this matter, showing the better performance of companies that have adopted the EVA system against a benchmark performance, usually the S&P 500, a group of peer companies in the same industry or an industry-specific index. In one of these studies, Prof. Robert Kleinman, from Oakland University, shows that the stock performance of Stern Stewart's EVA companies is 9% per year better, on average, than their industry peers. Moreover, he found that substantial improvements in EBITDA and operating margins, faster asset turns and stronger cash flow generation are the drivers of the superior performance. In another much cited paper, Wallace (1997) attests the superior operating performance of companies that have an EVA metric system linked with their incentive compensation schemes.

This is the first attempt ever to carry out such empirical study in Brazil and, despite the relatively small number of listed companies in the sample, the conclusions are robust and worth further investigation.

The major findings show the better performance of the portfolio containing EVA companies (EVA Index) against the market index and against the comparables portfolio both on a Total Return-only basis and on a Risk-Adjusted Performance basis (we are using Leah and Franco Modigliani's Risk-Adjusted Performance Measure definition - from now on called RAP).

It is important to mention that the results should not be interpreted as a recommendation of any particular trading strategy based on picking companies that implement the EVA Financial Management System.

Rather, we believe that the results suggest that the local capital market starts to differentiate and to look positively to companies that implement EVA, which may also be viewed as a proxy for an improved Internal Corporate Governance System.

Keywords: EVA, Value Based Management, Performance Measurement

JEL Classification: M40, M46, J33, G12, G34

Suggested Citation

Souza, Jose Guilherme C. and Jancso, Peter, Does It Pay to Implement a Full-Scale EVA Management System? Evidence from Brazilian Companies (January 2003). Available at SSRN: or

Jose Guilherme C. Souza (Contact Author)

Vinci Partners

Rio de Janeiro
5521 9129-4495 (Phone)

Peter Jancso

Stern Stewart & Co - Sao Paolo ( email )

Rua do Rocio, 291 - cj. 91
Vila Olimpia
Sao Paulo, SP 04552-000
(55 11) 3040-0861 (Phone)

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