On The Driving Factors Of The EVA Of Listed Commercial Banks

The outbreak of the Asia financial crisis in1997and the global financial crisis in2008have brought heavy losses to numerous industries, especially banking industry.The financial crisis leads to an increasing charge-off rate and makes a great impact oncapital adequacy ratio and profit of the bank. All these enable regulators to aware of thesupervision of bank capital. Therefore, the bank industry needs a transition from itshigh-risk, high-return goal. Apart from that, the competitiveness and risk preventionof the banks need to be improved, especially the commercial banks of china. In recentyears, with the reform of the china’s financial system and the opening-up of thefinancial industry, the banks will be confronted with not only the competition of theforeign banks, but also the challenge of the internet finance. At this moment, it isurgent to improve the permanent value and remain profitable. The application andevaluation of the EVA helps banks evaluate their performance objectively, estimatetheir potential of creating value, increase the project of greater EVA and reduce theinvestment of projects of less EVA, which make the competitiveness of commercialbanks improved both on the international and domestic market finally.The key point of the EVA is to take the cost of the capital and the risk of theequity investment into consideration. Beginning with the history and the practice ofEVA, the thesis analyzes the advantages of using EVA. The EVA not only helps banksconsider its development in the long run, but also helps managers manage the banksin the interest of the shareholders and pay attention to improve the value ofshareholders and enterprises rather than pursue the accounting profit. This can notonly increase the interest of the banks, but also help the banks prevent the risks, suchas credit risk, liquidity risk, market risk, management risk and so on.Economic value added is not just the calculation of numbers, but a scientificperformance appraisal system. It pursues for the quality, not the quantity. Beginningwith researches on listed commercial banks, the thesis calculates the EVA and REVAof the16listed banks and measures the real value added of the banks. Then, the thesisexplores the factors of increasing economic value added from the perspective of bothinternal factors and the external factors. The internal factors include the risk level,asset size, non-performing loan ratio and so on. The external factors includemacroeconomic environment, tax burden, market concentration and so on. The results show that the bank scale has the positive correlation with the REVA while thevariables related to risk has the negative correlation with the REVA, which suggeststhat banks should scale up properly and increase the economic value added. What’smore, the banks must reduce the risks, such as liquidity risk and increase the capitaladequacy ratio so as to improve the competitiveness of the banks, which is exactly thepurpose of using EVA in performance assessment.