The True Value of Eva

Abstract

Stern Stewart & Company (SSC) developed the measure, Economic Value Added (EVA), to reward employees for maximizing shareholder wealth. Financial analysts also use EVA to measure firm performance. This study assesses the performance of companies that have implemented the EVA-based compensation system, and questions whether analysts should use EVA performance to forecast stock performance. Investors in EVA adopters or in firms for which EVA has been used to forecast stock performance would have suffered significant losses.