Some New Evidence on Eva Companies

The study of companies using EVA and EVA‐like systems discussed in the previous article provides evidence of changes in managerial behavior, such as reduced capital expenditures, increased share repurchases, and increased residual income, but stops short of concluding that such changes have increased shareholder value. This article presents evidence that directly addresses the issue: Do companies adopting EVA add more value for their shareholders than their industry competitors? The author reports that U.S. companies adopting EVA during the period 1987–1996 outperformed the median firms with the same SIC codes by 28.8% during the four‐year period including and following the year of adoption. This paper also provides evidence of significant operating improvements that help explain such increases in shareholder value. But, in contrast to the finding of the Wallace study cited above, the capital expenditures of EVA companies increase (although at a slower rate than for S&P 500 companies) after going on to EVA.