Application Research Of EVA On The Value Management Of China’s Listed Commercial Banks

According to China’s WTO commitments, the business license and business scoperestrictions upon foreign banks have been phased out in the following five years. FormDecember11th,2006on, foreign banks began to enjoy national treatment. With moreand more foreign banks into China expanding business, the competition among banksbecomes fierce. In the context of financial globalization, China’s commercial banks facedual pressures from inside and outside: on the one hand, they need to actively respondto threat imposed by foreign banks due to their excellent brand, advanced serviceconcept, personalized products and rich experience, while, on the other hand, they facethe problem concerning their own operational management, that of liquiditymanagement, the loan issuance, pricing management, risk control, and so on. Therefore,it is not only the essential chips for Chinese commercial banks to improve their level ofvalue management to face fierce market competition but also the need of their ownstrategic development.In an increasingly competitive and ever-changing environment, only when theyfocus on sustainable growth and long-term development can enterprises really survive.Traditional pursuit of the goal of profit maximization is incomplete because it ignoresthe risk enterprises are involved in. Enterprises should pursue the maximization ofshareholders’ value and measure the wealth of shareholders in terms of EVA, theadvanced concept of enterprise value management. EVA is directly linked to thecreation of shareholders’ wealth, so better EVA means the quest to increaseshareholders’ value. In this sense, it is the only appropriate performance measurementindicator that caters to the wealth maximization of shareholders. EVA is not just aperformance measurement indicator, but an important tool for banks to conduct valuemanagement, which lays the foundation for banks to form incentive compensationsystems and build financial management system. In practice, many listed commercialbanks have introduced EVA value management system and obtained good effect.This paper gives a full account of the connotation of EVA and value management system, expounding the pros and cons of EVA indicators, further analyzing theapplication and practice of status quo of value management system in China’s listedcommercial banks. Based on empirical analysis, select16listed commercial banks asresearch subjects, combined with the special nature of the banking industry and thecurrent situation of China’s commercial banks to adjust EVA model, and analyze theresults and calculate relevant EVA according to related financial data from2004to2013of each bank. Finally, an empirical analysis of the driving factors of EVA is beingconducted in detail. Take into account the value of EVA management system (“4M”system) which includes two non-financial contents that of operational management andincentive system; analyze the internal drivers of EVA while keeping the regular assetsize, asset quality and adequacy of financial asset; increase the size of the board andincentive compensation. It is proved empirically that there is a significant positivecorrelation between China’s listed commercial banks’ EVA, asset size and executivecompensation; a negative correlation between its non-performing loan rate and capitaladequacy ratio; no significant correlation between its loan-to-deposit ratios and the sizeof the board. Conclusion is made to find effective ways to improve the valuemanagement level of China’s listed commercial banks.