A Study On The Performance Evaluation Of China’s Centrally-Owned State Enterprises Based On The EVA Theory

Implementing value-based management (VBM) is widely regarded as an imperative formodern enterprises to maximize their shareholder’s value. To ensure the realization of valuemanagement, it is necessary to evaluate the enterprise operator’s performance of valuemanagement. The enterprise performance evaluation system, which is based on theEconomic Value Added (EVA), is a type of value management whose primary concerns areVBM and performance evaluation. Although, in theory, the system has not fully matured andhas had numerous criticisms, many renowned international companies have used the systemsince the end of the last century, and practice has proved that they have received good results.In recent years, many Chinese companies have been attempting to use the EVA evaluationsystem; State-owned Assets Supervision and Administration Commission of the StateCouncil (SASAC) has, since 2010, vigorously encouraged centrally-owned stateenterprises(COSEs) to use the EVA. The EVA is considered a good means to improve valuemanagement and will play a crucial role in promoting COSEs’development; however, therewill be many challenges facing COSEs when using the EVA, due in large part to somenegative effects caused by premature market, enterprise flaw and macro-economicenvironment. These challenges will need to be solved further with sufficient research inpractice.COSEs are the typical embodiment of an economic system and the backbone of thestate-owned economy in China, and they play a crucial role in economic stability anddevelopment. This dominant position allows COSEs to have superiority in acquiringresources and funds over other economic units. However, it also results in waste of capitalvalue, low efficiency of using resources and flaw of corporate governance. COSEs havemore problems than other economic units have, particularly in a monopoly industry. Eventhough these problems persist, COSEs’basic duties for economic and social development arecompleted, heavily relying on investment to stimulate economic growth. Nonetheless,resources and environmental contradiction in social constraints will worsen over time,sustainable development will be facing tougher challenges, and an enterprise that is not welldesigned to survive in fierce competition will inevitably be out of market. All of the abovewill raise challenges to COSEs’system mechanism and operation. Therefore, for COSEs,implementing the EVA performance evaluation system and innovating value management will be highly demanded to promote further development.The EVA performance evaluation system, which includes performance evaluation,management system, incentive system and the concept, not only considers the capital cost ofthe enterprise, but also accurately reflects the enterprise value creation. There will beproblems of adaptation facing COSEs when using the EVA, mainly because of COSEs’special roles and characteristics. How to establish an EVA performance evaluation systemthat is suitable for China’s national conditions and effective for promoting COSEs’reformand development is a critical test, whether it is for the government departments or forCOSEs’operators.Based on the“EVA-based centrally-owned state enterprises performance evaluationsystem study”, this paper will introduce the general EVA theory and testify the necessity andfeasibility of implementing the EVA evaluation system in COSEs with discussing the processof enterprise performance evaluation development, the dynamic study of how it appliesdomestically and internationally, the study of COSEs’characteristics and the environment ofperformance evaluation.The most important point in this paper is to discuss and build a suitable enterpriseperformance evaluation system for COSEs based on the EVA system; furthermore, someproblems that are raised in the process of implementing the EVA by COSEs will also bediscussed.