IDEAS home Printed from https://ideas.repec.org/a/eme/arjpps/arj-01-2018-0018.html
   My bibliography  Save this article

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

Author

Listed:
  • Cherif Guermat
  • Ismail U. Misirlioglu
  • Ahmed M. Al-Omush

Abstract

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.

Suggested Citation

  • Cherif Guermat & Ismail U. Misirlioglu & Ahmed M. Al-Omush, 2019. "The long-term effect of economic value added adoption on the firm’s business decision," Accounting Research Journal, Emerald Group Publishing Limited, vol. 32(3), pages 496-513, September.
    • Handle: RePEc:eme:arjpps:arj-01-2018-0018
    DOI: 10.1108/ARJ-01-2018-0018
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/ARJ-01-2018-0018/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/ARJ-01-2018-0018/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/ARJ-01-2018-0018?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:arjpps:arj-01-2018-0018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.