The Study Of EVA’s Effectiveness In Evaluating The Performance Of China’s Listed Commercial Banks

As the development of China’s Capital market and the accelerated pace of commercialbanks get into the Capital market, the investment value and market performance of thecommercial banks are getting growing concern. Economic Value Added (EVA), as anadvanced performance evaluation tool, was highly regarded in the theory and practiceonce lunched in the1990s. The introduction of EVA to the commercial bankmanagement and evaluation plays an important role in precise performancemeasurement and value improvement.After reviewing domestic and foreign theories and research results about theeffectiveness of EVA, this paper elaborates the connotation of EVA, that is both afinancial evaluation indicator, and also a market performance indicator. On top of this,this paper further studied the EVA models those applicable to commercial banks, andperformed empirical study using factor analysis and multiple linear regression methodbased on publicly available data of all China commercial banks the year2009-2010.The finding could be summarized as following: Firstly, from the view ofinternal financial performance, EVA has a strong correlation with traditional financialindicators, which means that EVA can effectively measure the internal financialperformance of the commercial banks; Secondly, from the view of external marketperformance, currently EVA still cannot effectively reflect the performance ofcommercial banks in financial markets. Based on the empirical study results, it couldbe concluded that, as a comprehensive and effective performance indicator, EVAcould be introduced into current commercial financial evaluation. However, due to thefact that China’s Capital market is not perfect, the company’s intrinsic value has largedeviation from the market value, currently it is not advisable to use EVA as anexternal indicator to measure the market performance of those listed commercialbanks.This paper adopts the methodology of integrating theoretical research andempirical analysis, emphasizing on empirical analysis. In the theoretical research,according to the characteristics of commercial banks, the EVA model that applicableto commercial banks is built based on the integration of accounting and economicsprinciples. While in the empirical analysis, with the application of research tools such as CAPM model and dividend discount model, factor analysis and multiple regressionmethod have been employed.