Economic Value Added vis-a-vis Thinking of Indian Corporate Managers: A Survey Analysis

Abstract

The main rationale of this study is to explore the manager’s thoughts towards the hottest idea of fi nancial performance measurement i.e. economic value added or EVA. Debate is going on in corporate world of fi nance regarding the intrinsic worth and rarity of EVA. EVA was promoted profoundly by Stern Stewart, a New York based consulting fi rm, during 1990’s. The proponent of EVA presented it as the wonder remedy of the millennium in overcoming all corporate ills at one stroke and ultimately helps in raising the wealth of the shareholders, which is identical with the maximization of the fi rm value. But till date, EVA is the generally misapprehended phrase among the academicians and practitioners of corporate fi nance. For assessing the ingenious thinking of corporate managers of select industries, this study has been carried on the basis of primary data. For this purpose data has been collected from managers working in information technology (IT) and pharmaceutical industries through a well structured questionnaire. Manager’s opinion towards important attributes like perception towards EVA, views regarding superiority, existing status of different fi nancial measurement tools, expected outcomes of EVA, causes of reluctance for applying EVA , heterogeneous perception towards EVA among managers working in select industries and Respondents’ opinion towards EVA: without boundaries are essentially measured by using fi ve point interval scales. Out of the 81 valid responses only 3.4% respondent organizations are using Economic Value Added (EVA) as a fi nancial performance measurement tool. Most of the respondents agreed that it is the better fi nancial tool than traditional tools. But, yet Indian corporate is not very sure about its cost, effect and implementation in the organization. They still feel that they should wait and watch. Moreover, there is signifi cant difference between the thinking of the managers of Information Technology and Pharmaceutical industries regarding enthusiastic application of economic value added. Keywords: Value based management, Economic value added, Market Value Added, NOPAT and Financial performance Measurement tools

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