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AN ANALYSIS OF THE CORRELATION BETWEEN EVA® AND MVA®: THE CASE OF A NYSE EURONEXT LISBON LISTED COMPANY

Teresa da Cunha Pinto

UTAD University, Portugal

C. Machado-Santos

UTAD University, Portugal

ABSTRACT

International management practices emphasize the Economic Value Added (EVA®) model as one of the most important performance measures. The main distinction between EVA® and traditional metrics relates to the fact that EVA® incorporates both remunerated liabilities and financing costs of debt as well as the invested capital. In addition, EVA® includes adjustments that minimize a set of distortions that result from the accounting practice adopted. Furthermore, EVA® and MVA® (Market Value Added) together, provide a more accurate evaluation of the firm’s performance. Thus, our case study explores the use of EVA® in the corporate group Mota-Engil SGPS, SA, which has a significant presence in multiple activity sectors and is listed in NYSE Euronext Lisbon. We examine the incremental information of a set of performance measures between 2005 and 2009, using regression models. The empirical analysis allows us to identify the performance associated with the creation of value for the capital holders. Additionally, we analyse the MVA® performance and compare it to the existing link between the latter and the former measures, and we found a statistically significant relationship between EVA® e MVA®.

Key words: EVA®, MVA®, value based management.

JEL codes: G34; L21