Research On Economic Consequences Of The EVA Performance Measure Implemented In Central SOE Groups

Since the “Interim Operation Performance Evaluation Measures for Heads of Central State-Owned Enterprises” had been published by the SASAC(State-Owned Assets Supervision and Administration Commission)in November 2003,the SASAC has revised the performance measures in December 2006,December 2009,December 2012 and December 2016 successively.In order to increase the capital efficiency and deal with excessive production problems of central SOEs,the SASAC substituted economic value added(EVA)for return on equity(ROE)in the performance score formula it uses to evaluate central SOE groups.In accordance with the Chinese government’s object to implement the strategic transformation of central SOE groups,the SASAC adjusted the EVA calculation method and shifted the weight of EVA in performance score formula again in 2012.In this context,by using the archival records of the EVA and other financial performance data of central SOE groups between 2007 and 2015,this paper explores the overall implementation effects of both the 2009 and the 2012 editions of EVA performance evaluation methods in central SOE groups and tests how adopting the EVA performance measure affects main business operations,fixed asset investment and debt financing decisions of central SOE groups.Moreover,this paper further discusses how firm and industry characteristics of central SOE groups will affect the above results.Combining both the case study and the large-sample empirical research methods,this paper first analyzes the overall implementation effects of EVA performance measures in central SOE groups.Taking China North Industries Group as the case company,this paper finds that the EVA management system in China North Industries Group is a management framework in which the organization structure and management tools are highly integrated.To be specific,the EVA management system in China North Industries Group is guided by the group’s strategic objects and includes a series of management and control activities such as strategic planning,budgeting,execution and performance evaluation.It constitutes a completely closed ring-structured management system.In the implementation of EVA management system,the integration of multiple management control systems and the acceptance of organization structure are necessary.What is more,this paper finds that there is a close relationship between the excellent EVA performance and the implementation of EVA management system in China North Industries Group.At the same time,by using empirical records,this paper also finds that after the implementation of the EVA performance evaluation method,the positive impact of EVA on the performance evaluation results of central SOE groups is significantly greater than that of ROE.In addition,when the performance evaluation results of the central SOE groups reach Grade A,the performance ranking is only positively associated with the EVA performance.Under the premise that the EVA performance evaluation method has a significant effect on the management system and operation performance evaluation of central SOE groups,the fifth to seventh chapters of this paper examine how adopting the EVA performance evaluation method will affect the main business,the fixed asset investment and the debt financing of central SOE groups respectively.Using the unbalanced panel data of the central SOE groups from 2007 to 2015,the fifth chapter proves that the EVA performance evaluation method indeed plays an incentive role in focusing on the main business operation,but this incentive function is not yet sufficient to support the further increase of main business income growth.Furthermore,the headquarters’ management and control power of central SOE groups and the competition level in the industry have significant positive effect on the relationship between the EVA performance evaluation method and the main business operation in central SOE groups.Chapter 6 examines the impact of the EVA performance evaluation method on the fixed asset investment in central SOE groups.This paper shows that the implementation of the EVA performance evaluation method can improve further investment on both construction in process and fixed asset.In addition,when the competition level of the industry is higher,the positive incentive effect of the EVA performance evaluation method on the fixed asset investment is greater.Chapter 7 of this paper studies the impact of EVA performance evaluation method on the scale of debt financing by the central SOE groups.This paper finds that:(1)after the implementation of the 2009 version of the EVA performance evaluation method,although the scale of bank financing has declined significantly,there has been a significant increase in the scale of bond financing and debt financing of central SOE groups;(2)after the implementation of the 2012 version of the EVA performance evaluation method,the scale of bond financing continues to grow,but there is a significant decline in the scale of bank financing and debt financing;(3)since the implementation of EVA performance evaluation method,the financing preference of central SOE groups has shifted from bank financing to bond financing.Meanwhile,the paper also finds that after the implementation of EVA performance evaluation method,an increasing trend in the scale of bond financing is only found in low-asset-debt-ratio central SOE groups.On the contrary,the scale of debt financing in high-asset-debtratio central SOE groups presents a significant downward trend.In general,using the financial records of central SOE groups from 2007 to 2015,this paper tests the economic consequences of implementing EVA performance evaluation method that promoted by SASC in central SOE groups.This study confirms the following conclusions:(1)the EVA performance evaluation method has a significant effect on the management system and operation performance evaluation of central SOE groups;(2)the implementation of the EVA performance evaluation method has a significant effect on the main business operation,fixed asset investment and the scale of debt financing;(3)both the firm and industry characteristics of central SOE groups play important roles as moderators.Compared with similar EVA performance evaluation research,this paper adopts more specific research objects and is supported by more accurate and complete data.This study not only answers the questions of how operation,investment and financing behaviors of central SOE groups change after the implementation of the EVA performance evaluation method,but also discusses whether the EVA performance,the firm and industry characteristics of central SOE groups will also bring significant different effects.To some extent,this paper makes up the gap in related research about the EVA performance evaluation method,and also provides evidence for the effectiveness and further improvement of the EVA performance evaluation method used in the central SOE groups.Therefore,this paper has important theoretical innovation significance,as well as plays a policy and practice guidance role in the future.