If a company wants to earn profit and create value, it must earn a rate greater than the cost of capital known as residual income (Drucker 1995). This also leads to agency problems considered to be a prominent issue in management and finance. Studies have tried to further understand the impact of EVA application for resolving this issue or to provide another perspective. A recent study compared EVA with non-EVA adopters to understand its impact as a compensation tool for executives and its long-term effects. An increase in the working capital cycle, reducing the intensity of asset usage, and reducing share repurchases and dividends to decrease payout to shareholder wealth were found as the outcomes for EVA adopters (Guermat et al. 2019). This study provides justification for revisiting the seminal work of Wallace (1997), which stated the opposite of adopting a firm for a certain set of decisions (investing decision, financing decision, and operating decision) (Wallace 1997). Out of the seven variables used by Wallace (1997), only one showed similar results (the new investment). For future researchers, this again opens up the arena for analyzing adopters and non-adopters of EVA across the set of decisions taken in a company.
Finance For Executives Gabriel Hawawini Pdf Download
2ff7e9595c
Comments