Economic Value Added in performance measurement: A simulation approach and empirical evidence

Abstract

With increasing criticism on measuring executive performance based primarily on Total Shareholder Return (TSR), some academics and practitioners have revived discussions on using Economic Value Added (EVA) as an alternative. But if EVA failed to gain traction over the past two decades, is there any new evidence for it or different approaches to better implement it in corporate settings? In this study, we start by confirming EVA-related metrics' significant positive relationships with long-term TSR in the Australian market. Our empirical findings also address EVA's major drawback – too much complexity arising from accounting adjustments. Our results suggest that accounting adjustments are gen..