Empirical Research On The Implementation Of EVA And Its Impact On Agency Costs

The emergence of the modern enterprise system has brought the principal-agent relationship and the question of agency. In the current market economy, we can see the agency relationship everywhere, and the agency costs occurred at any time. Companies have been expanding and deepening its production specialization. In order to improve the enterprise,s operational efficiency, owners began to hire managers with professional management knowledge and experience for the daily management of enterprises. The professional management staff on behalf of the owner to participate in enterprise management and decision-making, resulting in a principal-agent relationship. The target of the principal and the agent is not completely consistent, as a representative also pursuit his own utility maximization, so there would be a conflict of interest between them. Sometimes, the agent may even use their advantages to violate the interests of the principal to meet their needs. So the principal will take some measures to reduce the agent acts against their interests, which result in agency costs. For a long time, people are working to find ways to reduce agency cost.The studying and solution for agency costs will improve our business development and have an important significance on the modern enterprise system.As a new performance assessment basis, EVA value-oriented, it can unify the management goal and the stakeholders, making the managers’ personal interests being consistent with the company’s overall interests. In this way, EVA can make the agent think and act in the principal’s behalf and reduce the agency conflict effectively. In 2010, the State-Owned Assets Supervision and Administration Commission(SAC) implement EVA performance appraisal method in the all central enterprises. It has been a long time since the implement of the approach in the central enterprises, whether the approach can achieve the desired effect, reducing agency costs have attracted academic attention. So, this article selects the 2007-2013 companiescontrolled by SAC and 2011-2013 companiescontrolled by LSACas samples, to study the effect of EVA on the agency cost. Among them, 2007-2009 and 2011-2013 SAC state were used to compare the effect on the agent cost before and after the implementation of EVA; While the 2011-2013 LSACstate and 2011-2013 SAC state were used to compare the effect on the agent costbetween the implementation and unimplementation of EVA.Previous studies usually investigate the effects of EVA equity agency costs by theory, but this article adopts the method of empirical research to examine the role of EVA on agency costs from the perspective of equity agency costs and debt agency costs, to verify the economic consequences of the EVA.In the empirical test, we selected substitution variables of equity agency costs and debt agency cost as explanatory variables separately and EVA as explanatory variables.Finally the empirical results confirmed that the implementation of EVA can reduce agency costs,which also can provides the reference for the research of EVA.