Eva, residual income and managerial performance

EVA (Economic Value Added) is the trademark used by an American consultancy firm, Stern Stewart & CO., to rename a performance measure that has been around for a very long time in the accounting literature - residual income. Under this concept of profit, a company creates wealth only when the cost of capital, included the opportunity costs of shareholders funds, has been recovered.
The objective of this study is to examine the theoretical foundations of EVA and its role as tool for monitoring and rewarding senior managers. Particular emphasis is given to the accounting adjustments and to the bonus bank proposed by Stern Stewart to align the interests of managers and shareholders, making the former behaving as owners.

Marco Papa is lecturer at the University of Bari "Aldo Moro" where he teaches Business Administration and Accounting. He was Visiting Researcher at the Adam Smith Business School of the University of Glasgow. His main research interests are business reporting (mainly risk disclosure) and corporate governance.