Project

ERASMUS UNIVERSITY ROTTERDAM - ESE

Bachelor Thesis: Economic Value Added and its Effect on Managerial Behaviour
An Investigation into the Effectiveness of an Economic Value Added Compensation System

ARUN PARAGH 11/7/2012

Student: Student ID: Supervisor: Department: July 2012

Arun Paragh 321388 Bart Snel Accounting, Auditing & Control

Abstract
As the financial statements of companies grow in importance, its users are increasingly demanding more adequate measures of performance and value. After the introduction of the Residual Income measure, Stern Stewart appraised this measure and eventually made further adjustments, giving rise to Economic Value Added (EVA). This measure is claimed to better reflect a company’s performance. However, the exact effects of using the EVA measure on a firm’s incentive program are still unclear. In this research paper, the goal will be to examine and interpret the effects of using an EVA-based incentive system on managerial behavior and firm profitability.
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Contents
Abstract ...................................................................................................................................... 1 Introduction................................................................................................................................ 3 Literature Review ....................................................................................................................... 5 EVA performance measure in contrast to traditional performance measures ..................... 5 Introduction ........................................................................................................................ 5 Results ................................................................................................................................. 5 Conclusion ........................................................................................................................... 7 EVA Adjustments

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