Economic Value Added (eva) Evaluation With The Traditional Performance Evaluation

Dissatisfaction with traditional accounting-based performance measures has gained value-based alternatives great popularity in western corporate internal management, among which Economic Value Added (EVA) is definitely the most prominent. In China, EVA concept has now begun to attract considerable attention both theoretically and professionally, but the research findings are relatively limited as to the usefulness of EVA in China.In this study, we first review the theory of EVA, which includes how EVA modifies the concept of residual income to its theory, EVA concept and their relationships to traditional metric, and the empirical results of the value-relevance of EVA. Second, we analyze the value-creation and performance of Chinese telecom industry with EVA numbers computed under Chinese GAAP. Third, we conduct an examination of whether EVA is more highly associated with corporate market value than conventional accounting-based measures such as ROE, EPS.CFO and Nl, using data of Chinese listed companies of telecom industry over the period 1998-2002.The results indicate Chinese telecom industry has been a value creator since 1999, but the value creation process is not so stable. The relative information content tests show that Nl is most closely associated with market value and EVA ranks the second. The incremental information content tests reveal EVA adds little explanatory power to Nl and ROE, but a great deal to EPS.