Research On The Impact Of The EVA Performance Appraisal System Of State-owned Enterprises On Inefficient Investments

Due to the separation of ownership and management, the principal-agent problem is prevalent in enterprises, and the state-owned property rights of enterprises dummy phenomenon makes its agent problem more prominent. Principal-agent problem causes managers deviate from the objective of maximizing corporate value when making investment decisions, leading to inefficient investment, which includes over-investment and inadequate investment. In order to regulate central enterprises manager's investment behavior, the SASAC decided to carry on EVA (Economic Value Added) performance appraisal system in central enterprises from 2010. EVA performance appraisal system replaces the ROE (Return on Equity) of traditional performance appraisal system to EVA. Compared to ROE based on accounting profits, EVA considers the cost of all capital, especially the cost of equity capital. Thus EVA performance appraisal system is more realistically reflect the company's operating performance, and guide managers'rational investment.To test the how EVA performance appraisal system affects inefficient investment of state-owned enterprises, this paper choose the China's state-owned A-share listed companies as sample, which was further divided into central enterprises have implemented EVA performance appraisal system and local state-owned enterprises not yet implement EVA performance appraisal system. This paper tests from both horizontal and vertical directions based on the above sample. Longitudinal Study results showed that:(1) After the introduction of EVA performance appraisal system, over-investment of the central enterprises is effectively suppressed; (2) After introduce EVA performance appraisal system, inadequate investment behavior of central enterprises increased. Cross-sectional study results showed that:(1) compared to local state-owned enterprises which didn't implement EVA performance appraisal system, the central enterprises'over-investment can be suppressed; (2) Horizontal contrast, EVA performance appraisal system and the enterprise were not associated with inadequate investment. These results indicate that EVA performance appraisal system can effectively curb over-investment and under-investment in central enterprises, so that the SASAC should continue to implement the EVA performance evaluation system, then the efficiency of central enterprises managers' investment decisions can be improved.