“a Study on Investors Perception Towards Eva as Reporting Practice in Indian Banking Sector “

Topics: Bank, Stock market, Value Pages: 9 (2043 words) Published: August 6, 2010
“A Study on Investors Perception towards EVA as Reporting Practice in Indian Banking Sector “

R.SATISH Dr.S.S.RAU Associate Professor Registrar SRR Engineering College Sathyabama University Chennai Chennai-119


Economic Value Added [EVA] is a value-based framework that provides a unique insight into value creation and unites the finance theory with the competitive strategy framework. EVA has become a popular and powerful tool for managers to measure performance and for guiding investment decisions. EVA can be computed for the organisation as a whole or according to types of products, lines of business, regions, and other factors. Traditional parameters of measurements like Return on Investment [ROI], Earnings Per Share [EPS], etc., have failed to measure what is most important today “Value Creation “. For Several years shareholders value was measured in terms of size and not quality. Of late, there has been a steady rise in the number of Indian Companies, which talk about the value they have created for their shareholders but a wide gap created in the banking system for EVA implementation. In this paper, an attempt has been made to know the investors perception towards EVA and to clarify the concept of EVA especially from the view point of reporting practices in the Indian Banking sector using statistical tools and appropriate suggestions were drawn.


Investors are currently demanding shareholders value more strongly than ever world-wide. The present study is an attempt to understand EVA concept in its present status and to examine reporting practices in the Indian Corporate sector along with a view of the investors towards the concept. The study also aims at knowing the investors perception towards EVA and also offering some recommendations as to how EVA should be used as a management tool. Shareholder-value maximization implies an increase of dividends and/or of share prices: the general view that managers primarily concentrate on these targets can be subject to various criticisms. Banks are complex systems with several actors, having an own-interest, such as: • Shareholders who are interested in maximizing the value of their holdings by obtaining high dividends and/or increasing share prices. However, this might not be an entirely accurate depiction. For example, majority and minority shareholders may have different holding periods and, consequently, minority shareholders are interested in maximizing their value over the shorter term, while majority shareholders may prefer increased dividends and share prices over the longer term (even sacrificing value maximization in the short term). • Board members may pursue their own goals (for example, the growth of corporate size or the number of shareholders in order to reduce shareholder power and increase their own power). • Managers may pursue their own goals (for example, risk aversion and maximizing their pay and other expenses – expense referencing), that may differ from shareholders’ and CEOs’ goals. • Customers, who covet high-quality services (such as brokerage, payment services etc.) at low prices. Among customers, it is necessary to distinguish between: i) Funds-suppliers, such as depositors, who wish to receive high interest and good payment services. ii) Funds-takers, such as borrowers, who aim to pay low interest on their loans and obtain credit facilities easily. • Suppliers, who prize steady sales. Among banks’ suppliers, the trade unions are particularly important. The unions represent the bank’s workforce (employees) and their objectives include high salaries and social security. • Government, which levies taxes and requires that all corporate activities be legal....

Bibliography: Stern, Joel M., and John S. Shiely, with Irwin Ross. The EVA Challenge: Implementing Value-Added Change in an Organisation. John Wiley & Sons, 2001.
Rappaport, Alfred. Creating Shareholder Value: A Guide for Managers and Investors. Free Press, 1997.
Knight, James A. Value Based Management: Developing a Systematic Approach to Creating Shareholder Value. McGraw-Hill, October 1997.
Ehrbar, A. EVA: The Real Key to Creating Wealth. John Wiley & Sons, 1998.
Copeland, Tom, Tim Koller and Jack Murrin. Valuation: Measuring and Managing the Value of Companies, Ed ed. John Wiley & Sons, 1995.
Luehrman, Timothy A. “What’s It Worth?: A General Manager’s Guide to Valuation.” Harvard Business Review, May/June 1997, pp.132-142.
Biddle, G., Bwen, R.M., Wallace, J.S., 1996. Abstract of “Evidence on the relative and incremental information content of EVA, residual income, earnings and operating cash flow”. University of Washington, Seattle, WA.
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