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Economic Value Added (EVA) for Performance Evaluation of Public Organizations

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  • Meena Subedi

    (Florida Atlantic University)

  • Ali Farazmand

    (Florida Atlantic University)

Abstract

This study tests whether economic value added (EVA) as a performance evaluation metric incentivizes public administrators to increase the performance of public organizations. It utilizes data from Wind Info Database (WIND) and finds that the adoption of EVA as a performance evaluation metric incentivizes public administrators to increase the overall efficiency of the public organizations under study. The study suggests that public administrators make prudent investment and operating decisions after the adoption of EVA as their performance evaluation metric, thereby increasing the overall organizational performance. Using 2274 firm-year observations for the period from 2009 to 2010 in China, this paper uses first-difference change analysis methodology that takes care of firm-level unobservable heterogeneities and addresses endogeneity concerns, thereby producing robust results. The change analysis setting has been used in prior studies to find the effect of certain treatment (e.g., Lyons et al. 2001; Kerr et al. 2006; Pal and Pohit 2014). Lyons et al. (2001) argue that the change analysis focuses on studying differences before and after services (i.e., the presence and absence of treatment) that are received. In our research design, the treatment is adoption of EVA by the SASAC, which occurred in year 2010.

Suggested Citation

  • Meena Subedi & Ali Farazmand, 2020. "Economic Value Added (EVA) for Performance Evaluation of Public Organizations," Public Organization Review, Springer, vol. 20(4), pages 613-630, December.
    • Handle: RePEc:kap:porgrv:v:20:y:2020:i:4:d:10.1007_s11115-020-00493-2
    DOI: 10.1007/s11115-020-00493-2
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    References listed on IDEAS

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    1. Machuga, Susan M & Pfeiffer, Ray J, Jr & Verma, Kiran, 2002. "Economic Value Added, Future Accounting Earnings, and Financial Analysts' Earnings Per Share Forecasts," Review of Quantitative Finance and Accounting, Springer, vol. 18(1), pages 59-73, January.
    2. Alexei SIRBU, 2012. "Economic Value Added (EVA) Approach in Russia. Concepts. Approaches. Instruments," REVISTA DE MANAGEMENT COMPARAT INTERNATIONAL/REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 13(2), pages 305-312, May.
    3. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    4. Ali Farazmand, 2017. "Governance Reforms: the Good, the Bad, and the Ugly; and the Sound: Examining the Past and Exploring the Future of Public Organizations," Public Organization Review, Springer, vol. 17(4), pages 595-617, December.
    5. Tarek A Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2019. "Firm-Level Political Risk: Measurement and Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 134(4), pages 2135-2202.
    6. Avishek Bhandari & Babak Mammadov & Maya Thevenot, 2018. "The impact of executive inside debt on sell-side financial analyst forecast characteristics," Review of Quantitative Finance and Accounting, Springer, vol. 51(2), pages 283-315, August.
    7. Scott Keating, A., 1997. "Determinants of divisional performance evaluation practices," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 243-273, December.
    8. Ibendahl, Gregory A. & Fleming, Ronald A., 2003. "Using Economic Value Added (Eva) To Examine Farm Businesses," 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama 35145, Southern Agricultural Economics Association.
    9. Moujib Bahri & Josée St‐Pierre & Ouafa Sakka, 2011. "Economic value added: a useful tool for SME performance management," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 60(6), pages 603-621, July.
    10. de Villiers, Johann, 1997. "The distortions in economic value added (EVA) caused by inflation," Journal of Economics and Business, Elsevier, vol. 49(3), pages 285-300.
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    Cited by:

    1. Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Arkadiusz Babczuk, 2022. "Can the Economic Value Added Be Used as the Universal Financial Metric?," Sustainability, MDPI, vol. 14(5), pages 1-14, March.
    2. Scott Dell & Meena Subedi & Maxwell K. Hsu & Ali Farazmand, 2023. "The Independent Audit for Nonprofits: Does it Make a Difference?," Public Organization Review, Springer, vol. 23(4), pages 1437-1453, December.
    3. Prasoon Mani Tripathi & Varun Chotia & Umesh Solanki & Rahul Meena & Vinay Khandelwal, 2022. "Economic Value Added Research: Mapping Thematic Structure and Research Trends," Risks, MDPI, vol. 11(1), pages 1-19, December.
    4. Paulo Augusto Pettenuzzo Britto & Carlos Henrique Rocha & Andrea Oliveira Gonçalves, 2023. "Performance-Related Payment in the Public Sector: Theoretical Issues and Results from a Case Study of a Brazilian Government Agency," Public Organization Review, Springer, vol. 23(3), pages 1275-1292, September.
    5. Scott Dell & Meena Subedi & Maxwell K. Hsu & Ali Farazmand, 2022. "Social Capital and Financial Performance in Nonprofits," Public Organization Review, Springer, vol. 22(1), pages 193-210, March.

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