EVA Appraisal, Investment Efficiency And Firm Value

Corporate value creation involves first the effective organization of capital movement or financial activities, in order to improve the efficiency and effectiveness of capital operation. And one of the core issues of effective capital management is investment efficiency. However, in recent years investment inefficiency is widespread in the listed-companies in our country, which greatly detracts from value creation and seriously undermines the capacity for sustainable development. In this regard, the State-owned Assets Supervision Administration Commission began the full implementation of economic value added performance appraisal to central enterprises, aiming to lead central enterprises to investment properly, improve investment efficiency, boost the corporate value and promote their sustainable development and finally ensure the value of state-owned assets via such value-oriented performance appraisal system. In2013, the SASAC raises the EVA assessment index weight to50%, which indicates that EVA has become the important baton of central business performance appraisal. After a lapse of three years, how are the economic consequences of the enterprises in our country implementing EVA appraisal?In order to examine the above proposition, this paper, based on the special institutional background of emerging and transitional stage, at the moment of the SASAC implementing EVA in central enterprises, according to a series of theories such as performance appraisal, corporate investment and value creation, by combing the main drivers and solutions of investment inefficiency, pointing at the state-owned listed companies, using the empirical research method of large sample statistics, reveals the inner logic of EVA appraisal governing investment inefficiency and enhancing corporate value, and empirically tests this effect and function, and finally constructs the mechanisms of governing investment inefficiency and boosting corporate value of state-owned companies.This paper follows the path of "Literature review-Theoretical analysis-Model building-Empirical tests-Policy recommendations". Firstly, via literature analysis, this paper examines the relationship and research progress of EVA appraisal, investment efficiency and corporate value, and summarizes their merits and shortcomings. Secondly, this paper illustrates the path of EVA improving investment efficiency and boosting corporate value via theoretical deduction. Thirdly, based on the sample of state-owned listed companies of2010-2012, and via empirical models, this paper tests and explores the following issues:whether EVA implementation improves investment efficiency and boosts corporate value; what the mechanisms of EVA implementation enhancing corporate value are. Finally, this paper proposes corresponding policy recommendations according to the above testing results.This study shows that in the state-owned listed companies, over-investment and under-investment both exist and both produce damaging effects to value creation for the companies; the implementation of EVA appraisal has affected the two inefficient investments differently:for over-investment companies, the implementation of EVA appraisal can significantly reduce over-investment, and furthermore enhance firm value; while for under-investment companies, the empirical testing results are contrary to what has been expected, which is, the implementation of EVA appraisal actually aggravates under-investment, and moreover undermines firm value. This paper finally analyzes the causes of such phenomenon.The main innovation lies in:Firstly, from the theoretical perspective, by combining the theories of economic value added, performance appraisal, firm investment and firm value, this paper has studied the governing effect of EVA performance appraisal to investment inefficiency and the mechanism to boost firm value, thus it enriches and develops related theoretical research results, and opens a new way of thinking for theorists. Secondly, from the application perspective, this paper applies the inefficient investment as an intermediary and studies the mechanism of EVA appraisal enhancing firm value. The conclusion has provided empirical evidence for the long-standing debate about the economic consequences of EVA, and opened a new way of thinking for the enterprises to constrain investment inefficiency and boost firm value, and also proposed related recommendations for policy sectors implement and reform the policies.The inadequacies are reflected in:firstly, it is not quite long since the companies formally implemented EVA, so that the effects are not that obvious, which can to some extent affect the robustness of the conclusions of this paper; Secondly, although this study makes great efforts to collect the information of EVA implementation as much as possible and strives to be accurate, there will inevitably be some missing information. Of course, with the gradual deepening of EVA implementation and developing of information network, we will surely overcome these problems in our future studies.