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

Abstract

In this paper we examine whether Economic Value Added (EVA^TM) is a good predictor of shareholder value creation (SVC) for a group of Latin American companies. We also examine whether EVA^TM 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 EVA^TM and SVC. They also indicate that EVA^TM 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 EVA^TM across countries and significant differences in EVA’s association with SVC across industries.