Managerial Performance Measures And Shareholder Value Creation: The Case Of Latin American Companies

Abstract

In this paper we examine whether Economic Value Added (EVATM) is a good predictor of shareholder value creation (SVC) for a group of Latin American companies. We also examine whether EVATM is a better predictor of SVC than competing accounting-based measures of managerial performance. The relationship of these predictors to SVC is paramount in a study of factors influencing shareholder value creation such as the compensation of a firm’s executives. Our results show strong correlations between EVATM and SVC. They also indicate that EVATM outperforms competing measures even after controlling for the potential effects that these last metrics have on SVC. Moreover, they reveal different levels of SVC sensitivity to changes in EVATM across countries and significant differences in EVA’s association with SVC across industries.