EVA: Does Size Matter?

Value-added performance measures, such as economic value added (EVA), are promoted as a means to better align managerial incentives and improve firm performance. This paper empirically examines whether EVA adopters outperform a peer group of non-adopters over a long term horizon. It also explores the determinants associated with differences in relative market performance of these two groups. We find mixed results consistent with previous studies. In examining risk adjusted market returns, we find that the full sample significantly underperforms the market. However, during the period of the study, EVA adopters exhibit less negative performance than non-adopters. Moreover, over the entire study period, adopter performance improves in a positive direction, while non-adopters experience a performance decline. Adopting firms also exhibit higher earnings growth and higher returns. In perspective, these results suggest there is some benefit to EVA adoption, relative to a peer group, as adopters outperform their peer group. In a comparison of peer matched groups, firm size and growth opportunities are found to have a significant impact on performance for three size-based groups.