Skip to main content

Research Repository

See what's under the surface

The long-term effect of economic value added adoption on the firm’s business decision

Guermat, Cherif; Misirlioglu, Ismail Ufuk; Al-Omush, Ahmed

Authors

Ahmed Al-Omush



Abstract

© 2019, Emerald Publishing Limited. Purpose: This study aims to examine the long-term effects of adopting economic value added (EVA) as a compensation tool on managers’ behaviour. Design/methodology/approach: The authors extend the sample used in prior studies both in the time and the cross-section dimensions. Findings: The study conclusions are distinct from those offered by existing studies. The authors show that EVA adopters, relative to non-EVA adopters, increase the working capital cycle, use their assets less intensively and decrease their payouts to shareholders via a decrease in dividends and share repurchases. In investing decisions, the authors find a decrease in new investments, but no change in asset dispositions after the adoption of EVA compensation plans. Originality/value: The study results highlight that the EVA adoption provides more incentives to reduce the total cost for capital rather than increasing operations and maximising shareholder wealth. The results also have implication for corporate management, particularly in the area of management compensation scheme design.

Journal Article Type Article
Publication Date Sep 27, 2019
Journal Accounting Research Journal
Print ISSN 1030-9616
Publisher Emerald
Peer Reviewed Peer Reviewed
Volume 32
Issue 3
Pages 496-513
APA6 Citation Guermat, C., Misirlioglu, I. U., & Al-Omush, A. (2019). The long-term effect of economic value added adoption on the firm’s business decision. Accounting Research Journal, 32(3), 496-513. https://doi.org/10.1108/ARJ-01-2018-0018
DOI https://doi.org/10.1108/ARJ-01-2018-0018
Keywords economic value added, residual income, business decision
Publisher URL https://www.emeraldinsight.com/loi/arj

Files







You might also like



Downloadable Citations