Academic journal article The Journal of New Business Ideas & Trends

Economic Value Added (EVA TM): A Thematic-Bibliography

Academic journal article The Journal of New Business Ideas & Trends

Economic Value Added (EVA TM): A Thematic-Bibliography

Article excerpt

Asbstract

Purpose -This paper provides a thematic-bibliography of a selection of published journal articles that pertain to the EVA(TM) model.

Design/methodology/approach - Searches were conducted on the EBSCO Host, ProQuest, and Googel Scholar databases to identify papers that had examined or otherwise incorporated the model in the research. This thematic- bibliography is divided into four categories regarding the literature on EVA(TM) - the first relates to the theory and development of the model the second where comparisons were made of the model against other models, and the next two relate to the use and application of the EVA(TM) model - as a tool for internal evaluation of projects and then as a tool for the measurement of wealth creation in terms of the share market value.

Implications - This analysis provides insights into the delineation between the uses and applications that have arisen in the literature and in that respect provides support for future research into the EVA(TM) model.

Keywords: Economic value added, EVA(TM), thematic-bibliography.

JEL Classifications: M41; G10

PsycINFO Classifications: 3600

FoR Code: 1501

Introduction

The Economic Value Added (EVA(TM)) model can be traced back to the seminal work of Stewart (1991). Since its inception it has become an alternative approach for companies as a measure of financial performance both at corporate level and at a sub level when evaluating project or divisional performance (Uyemura, Kantor & Pettit (1996). The EVA model has been held to provide a information that can be considered as incremental to the traditional Earnings Per Share (EPS) ratio and can arguably provide greater assistance in forecasting future earnings (Movassagh, Seyyedi & Tahmasebi (2011). The EVA model has been subjected to empirical testing since its inception with some papers attempting to clarify variables inherent in the formula. A simple and somewhat easy to follow approach is presented in Figure 1 below.

In an effort to address the need to calculate the EVA for small business Rotocki and Needy (2005) formulated an approach that was more applicable to the circumstances of a small business. The approach is presented in Figure 2 below. To distinguish between the traditional EVA model and this new variation to the model they used lower case italicised letters which in their own words were to emphasise "... objective of this system ...". Unfortunately, there is little evidence in the literature of this model being used to empirically test its application or robustness.

Since the EVA model has two possible uses, one at the corporate level and the other at the level of individual projects, the published research is rather diverse in nature and esoteric in addressing the use of the model. This paper is aimed at providing a review of those areas of the research that highlight the diverse nature of the industries and uses for which the model has been applied and accordingly this is intended to underpin future research.

Method

In keeping with the method as espoused by Perrin and Laing (2012) the thematic - bibliography involved a literature search of the databases ProQuest, EBSCOHost, and Google Scholar. The analysis is restricted to published journal articles because they have been subjected to a review process. This thematic -bibliography follows the approach established by Perrin and Laing (2012) and exemplified by Volkov (2012) -the literature is classified according to the characteristics identified in each of the journal. For the purpose of this paper, the literature was divided into four categories the first relates to the theory and development of the model the second where comparisons were made of the model against other models, and the next two relate to the use and application of the EVA(TM) model - as a tool for internal evaluation of projects and then as a tool for the measurement of wealth creation in terms of the share market value of organisations. …

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