Abstract
The purpose of this paper is to determine if companies that chose to incorporate Economic Value Added (EVA®) as part of their executive compensation package tend to have better corporate governance than similar firms who have not chosen to use EVA®. EVA® is an economic profit metric developed by Stern Stewart & Co., which is calculated by taking the Net Operating Profits after Taxes (NOPAT) and subtracting a capital charge from it. Through the use of binary logistic regression the strength of several key corporate governance measures were tested in order to ascertain whether they have a significant impact on influencing a firm to use EVA®. A major finding is that firms that employed EVA® as part of their compensation package tend to have a weaker corporate governance.
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