Evaluating corporate performance:a critique of economic value added


There has been a revival of interest in economic techniques to measure the value of a firm through the use of economic value added as a technique for measuring such value to shareholders. This technique, based upon the concept of economic value equating to total value, is founded upon the assumptions of classical liberal economic theory. Such techniques have been subject to criticism both from the point of view of the level of adjustment to published accounts needed to make the technique work and from the point of view of the validity of such techniques in actually measuring value in a meaningful context. This paper critiques economic value added techniques as a means of calculating changes in shareholder value, contrasting such techniques with more traditional techniques of measuring value added. It uses the company Severn Trent plc as an actual example in order to evaluate and contrast the techniques in action. The paper demonstrates discrepancies between the calculated results from using economic value added analysis and those reported using conventional accounting measures. It considers the merits of the respective techniques in explaining shareholder and managerial behaviour and the problems with using such techniques in considering the wider stakeholder concept of value. It concludes that this economic value added technique has merits when compared with traditional accounting measures of performance but that it does not provide the universal panacea claimed by its proponents.

Divisions: College of Business and Social Sciences > Aston Business School > Accounting
College of Business and Social Sciences > Aston Business School
College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
Uncontrolled Keywords: value of a firm,economic value added,economic value,total value,classical liberal economic theory,shareholder value,measuring value added,Severn Trent
Publication ISSN: 1758-8855
Last Modified: 08 Dec 2023 09:04
Date Deposited: 11 Mar 2019 17:28
PURE Output Type: Article
Published Date: 1998
Authors: Crowther, David
Davies, Matt L.
Cooper, Stuart M.



Version: Accepted Version

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