The Validity Of EVA Method In The Performance Valuation Of China List Companies

In the 21st century, the financial goal of corporate is now shifting from profit maximization to value maximization. As a result, it is very important to find a proper performance evaluation method and construct a corresponding incentives mechanism which allows managers and shareholders share the same objectives towards the goal to maximize shareholder wealth.Economic Value Added (EVA) was proposed by Stern & Stewart Co. in the 1990s. Since then, a lot of famous corporations have adopted EVA as performance valuation method, and EVA has been greatly successful.However, firms in China have not build a performance valuation system that based on value maximization yet, the use of EVA need to be developed in the future. To support the use of EVA in China, this paper focus on whether the indicators of EVA method have correlation with Market Value Added (MVA), which measures the value of the company,and whether the indicators of EVA method is more correlative than traditional performance valuation indicators.First of all, this paper adjust EVA according to the 2007 new accounting standards of China, then give the compute method, and introduce the other indicators of EVA method, such as Economic Value Added per share(EVAPS), Current Operating Value(COV), Future Growth Value(FGV),etc. After that, this paper established standards of which are good performance indicators. The traditional performance indicators can be divided to three categories:indicators based on accounting gain, indicators based on residual income, indicators based on cash flow. After analysis the advantages and disadvantages of these indicators, we can find that EVA is better than traditional indicators in the performance evaluation.On this basis, this paper chooses 1140 samples of A-share listed companies of China and earnings per share(EPS), returns of equity(ROE),Economic Value Added per share(EVAPS),Future Growth Value per share(FGVPS),operating cash flow per share(OCFPS)as explanatory variables and Market Value Added(MVA)as explained variable, uses empirical methods to analysis the correlations between the explanatory variables and explained variable. We find that indicators FGVPS and EVAPS in the EVA method are significant correlative with MVA, and are more correlative than traditional indicators.