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Economic Value Added And Stakeholders Interests

Author

Listed:
  • Burja Vasile

    (Universitatea 1 Decembrie 1918, Alba Iulia, Facultatea de Stiinte)

Abstract

Abstract. The value creation is the major objective of companies' functioning. It aims at meeting the general interests of stakeholders. The shareholders are directly interested by value added as they can recover the investments made and obtain the expected profit. Managers and the other employees are motivated through certain salary incentives to act for creating value. The general interest of national economy to increase the value created is due to the fact that this indicator is the main condition for raising the standard of living and quality of life.This is why, the analysis of economic value added created by companies and identification of factors which can influence it, is an important element in the process of substantiating the managerial decisions and investments options. There are different methods that can be used to measure the companiesâ€â"¢ performance in the process of value creation but sometimes they provide contrary or partially information. The paper presents the indicator Economic Value Added which can be used both to substantiate the strategic and operational decisions and assess the results of their implementation. The case study presented in the paper is a theoretical and practical tool to analyze this indicator and evaluate the influence factors that determined its manifestation. The findings highlight some directions to act for increasing the Economic Value Added according with the stakeholdersâ€â"¢ interests. The paper contributes in a theoretical and practical way to academic debate through proposing an analysis model which is based on the DuPont equation. Information provided by it, constitutes important arguments to shift the traditional view of appreciating performance with profit, in favour of adopting a value created oriented corporative philosophy, which concerns the cost of all capital sources. The management based on economic value added allows increasing performance through the re-modelling of the internal and external investment portfolio, and optimizing the financial structure by minimizing the weighted average cost of capital. However, it does not exclude traditional policy, based on maximum turning to account of internal reserves that influence economic results (decrease of costs, production increase, increase of inventory rotation speed etc.).

Suggested Citation

  • Burja Vasile, 2013. "Economic Value Added And Stakeholders Interests," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 512-522, December.
  • Handle: RePEc:ora:journl:v:1:y:2013:i:2:p:512-522
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    File URL: http://anale.steconomiceuoradea.ro/volume/2013/n2/048.pdf
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    References listed on IDEAS

    as
    1. Cachanosky, Nicolas, 2009. "GDP vs EVA as an Economic Indicator," MPRA Paper 15262, University Library of Munich, Germany.
    2. Daniel Circiumaru & Marian Siminica, 2009. "Refined Economic Value Added €“ An Indicator For Measuring The Performances Of The Companies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 5(05(534)(s), pages 204-213, May.
    3. Ali M Ghanbari & V S More, 2007. "The Relationship between Economic Value Added and Market Value Added: An Empirical Analysis in Indian Automobile Industry," The IUP Journal of Accounting Research and Audit Practices, IUP Publications, vol. 0(3), pages 7-22, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    economic performance; Economic Value Added (EVA); cost of capital; stakeholdersï¿Â1/2 interests;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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