Economic Value Added (EVA) and Shareholders Wealth Creation: A Factor Analytic Approach

Abstract

Corporate performance is affected by various factors ranging from company specific, industry specific and economic variables. There had been wide acceptance on the objective of the firm to maximize the value. Among the set of popular value based management, Economic Value Added (EVA) is the most prominent. Therefore, in this study, an attempt has been made whether EVA has got a better predictive power of selected automobile companies in India. In order to disclose the factors contribute much towards shareholders wealth maximization, factor analysis has been done. The results of the study showed that out of the eight variables, three factors have been extracted and these three factors put together explain 69.902 per cent of the total variance. Further, sales and profit after tax are found to have a stronger relationship with EVA.

Key Words

Economic value added, Factor analysis, Shareholders wealth, Value based management and Market value added