Abstract
Prior to the East Asian financial crisis scholars found the necessity of a true financial performance measure in Malaysia. After more than one decade of the crisis Malaysian firms still stick with the conventional performance measures, which are criticised due to general accepted accounting principles. In this vein, this study aims to study a value based financial performance measure which can be adopted by the Malaysian firms over the conventional measures currently used. Economic Value Added (EVA) was introduced and advocated by Stern Stewart and Co. in 1982. This study intended to identify why EVA should be used as financial performance measure over the conventional measures and any added value or added advantage in EVA compare to conventional methods. EVA has been able to gain attention of the corporate giants like Coca-Cola, Sprint Corporation and Quaker Oats, as it is able to depict the true profitability of the company, however, there have been very little research conducted on EVA in Asian countries including Malaysia.
Highlights
Due to ample of evolution in last decade in the corporate world, managers and investors are seeking for an economic framework which better mirror the value and profitability of their company
Economic Value Added (EVA) has been adopted by the advanced economies as financial performance measurement tool and corporate strategy which helped EVA to be identified as an important financial performance measurement tool over the conventional tools around the world
There are very little evidences against the superiority of EVA over conventional financial performance measurement tools, which were defended in this paper
Summary
Due to ample of evolution in last decade in the corporate world, managers and investors are seeking for an economic framework which better mirror the value and profitability of their company. There are number of value based measurement in the economic framework, for example Economic Value Added (EVA), Cash Value Added (CVA), Cash Flow Return on Investments (CFROI), Shareholder Value Analysis (SVA) and Market Value Added (MVA) Erasmus, 2008 [1]; Maditinos, Sevic, & Theriou, 2006 [2]; Fredrik, 1997 [3]. Any of these can be chosen by a company as their economic framework. According to the past studies, economic frameworks set quality standard in measuring performance and it is necessary for company to create value for shareholders
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