This paper analyzes if EVA (Economic Value Added) evaluation system can reduce the corporations’ overinvestment phenomenon by using the study sample of 204 listed SOEs (state-owned corporations) with the sample period from 2007 to 2012. Then according to Tobin’s Q value, we divided all the 204 listed SOEs into two groups, high growth corporations and low growth corporations, and observed if the implementation of EVA has different inhibition effect on the listed SOEs of different growth. The results indicated that EVA can’t significantly reduce the listed SOEs’ overinvestment, but it has different inhibition effect on different growth corporations. The EVA can significantly reduce low growth listed SOEs’ overinvestment, which suggests the EVA evaluation system can improve low growth corporations’ investment situation.
KeywordsEVA (Economic Value Added)Corporation GrowthOverinvestmentSOEs (State-Owned Corporations)
Jensen, M.C. (1986) Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, 323-329.
Pan, M. and Jin, Y. (2003) Asymmetric Information, Equity System Arrangement and Listed Companies’ Overinvestment. Financial Research, 1, 36-45.
Wei, M.H. and Liu, J.H. (2007) State-Owned Companies’ Dividends, Governance Factors and Overinvestment. Management World, 4, 88-95.
Kong, D.M. and Feng, X. (2012) A Study of Dividends Policy and Over-Investment of Company. Investment Research, 6, 29-44.
Denis, D.J. and Sibilkov, V. (2010) Financial Constraints, Investment, and the Value of Cash Holdings. Review of Financial Studies, 23, 247-269. https://doi.org/10.1093/rfs/hhp031
Zhang, H.L. and Lu, Z.F. (2012) Cash Distribution, Corporate Governance and Overinvestment—An Empirical Study on the Cash Holdings of Chinese Listed Companies and Their Subsidiaries. Management World, 3, 141-149.
Yu, H.H. and Xu, L.B. (2010) Ultimate Controlling Shareholders’ Control and Over-Investment of Free Cash Flow. Economic Research, 8, 103-114.
Tang, X.S., Zhou, X.S. and Ma, R.J. (2010) Government Interference, GDP Growth and State-Owned Companies’ Over-Investment. Financial Research, 8, 33-84.
Du, X.Q., Zeng, Q. and Du, Y.J. (2011) Political Connection, Over-Investment and Corporate Value: Empirical Evidence from State-Owned Listed Companies. Financial Research, 8, 93-110.
Myers, S.C. (1977) Determinants of Corporate Borrowing. Journal of Financial Economics, 5, 147-175. https://doi.org/10.1016/0304-405X(77)90015-0
Li, W.A. and Jiang, T. (2007) A Study on Corporate Governance and the Over-Investment Behavior of Enterprises: Evidence from Chinese Listed Companies. Economics of Financial and Trade, 12, 56-61.
Sun, Z. and Wu, Q. (2003) Economic Value Added: Thinking under Reputation. Accounting Research, 3, 8-14.
O’Byrne, S.F. (1997) EVA and Shareholder Return. Financial Practice and Education, 7, 50-54.
Biddle, G.C., Bowen, R.M. and Wallace, J.S. (1997) Does EVA Beat Earnings? Evidence on Associations with Stock Returns and Firm Values. Journal of Accounting and Economics, 24, 301-336. https://doi.org/10.1016/0304-405X(77)90015-0
Tortella, B.D. and Brusco, S. (2003) The Economic Value Added (EVA): An Analysis of Market Reaction. Advances in Accounting, 20, 265-290. https://doi.org/10.1016/s0882-6110(03)20012-2
Stern, J. (2004) Corporate Governance, EVA, and Shareholder Value. Journal of Applied Corporate Finance, 16, 91-99. https://doi.org/10.1111/j.1745-6622.2004.tb00541.x
Worthington, A.C. and West, T. (2001) Economic Value-Added: A Review of the Theoretical and Empirical Literature. Asian Review of Accounting, 9, 67-86. https://doi.org/10.1108/eb060736
Rogerson, W.P. (1997) Intertemporal Cost Allocation and Managerial Investment Incentives: A Theory Explaining the Use of Economic Value Added as a Performance Measure. Journal of Political Economy, 105, 770-795. https://doi.org/10.1086/262093
Mouritsen, J. (1998) Driving Growth: Economic Value Added versus Intellectual Capital. Management Accounting Research, 9, 461-482. https://doi.org/10.1006/mare.1998.0090
Wang, X.F. and Wang, L. (2012) The Chinese Characteristics of EVA Assessment. Finance and Accounting Monthly, 23, 59-60.
Liu, J. (2011) Thoughts on Introducing the Economic Value Added of the Central Enterprises to Checking the Management Achievements. Finance and Accounting Monthly, 14, 13-14.
Bao, X.D. and Xiao, W.J. (2012) The Application of Economic Value Added in Management. Chinese Commerce and Trade, 9, 83-83.
Wang, L.G. (2013) Enlightenment from the Economic Value Added of Central Enterprises. Business Accounting, 3, 87-88.
Yuan, G. (2012) Brief Discussion on Economic Value Added Evaluation Method. Research of Finance and Accounting, 11, 62-64.
Chi, G.H., Wang, Z. and Yang, J. (2013) Does EVA Valuation Enhance Enterprise Value: Empirical Evidence from State-Owned Listed Companies in China. Accounting Research, 11, 60-66.
Holmstrom, B. (1979) Moral Hazard and Observability. The Bell Journal of Economics, 10, 74-91. https://doi.org/10.2307/3003320
Tang, L.Z. and Zheng, S. (2011) A Comprehensive Study on the Growth of Enterprises. Managers, 7, 8-9.
Richardson, S. (2006) Over-Investment of Free Cash Flow. Review of Accounting Studies, 11, 159-189. https://doi.org/10.1007/s11142-006-9012-1
Fang, H.X. and Jin, Y.N. (2013) Corporate Governance, Internal Control and Inefficient Investment: Theoretical Analysis and Empirical Evidence. Accounting Research, 7, 63-69.
Zhang, X.Z. and Li, Q. (2012) An Empirical Analysis of Impacts of EVA-Based Performance Evaluation on Over-Investment Behavior of Central SOEs. Contemporary Finance & Economics, 5, 119-128.
Liu, F.W. and Li, Q. (2013) Market Competition, EVA Evaluation and Corporate Over-Investment. Accounting Research, 2, 54-62.