Empirical Analysis on Impact of Economic Value Added on Shareholder’s Value: A Perspective from Malaysian Construction Companies

Background: Economic value added (EVA) is a concept developed Stern Stewart
helps to identify true profitability of the organization due to consideration of cost of
equity. Construction companies have been taken under consideration for this study.
Objective: To provide an alternative measurement tool for the Malaysian construction
companies that identifies true economic profit and enhance shareholder‟s value. Cross
sectional secondary data are used of the selected companies for the period of 10 years
from 2003 to 2012 Results: The result found significant influence of EVA on
shareholder‟s value creation. It was also noticed from the trend analysis that from the
28 companies only 10 companies were having positive EVA whereas the remaining has
destroying the shareholder value. The reason for negative EVA is high cost of equity.
Conclusion: Thus in the proposed model it is confirmed that EVA as a value based
performance tool dominates the shareholder value. Hence managers are suggested to
pay more focus on the importance of EVA and its benefits for the shareholder‟s wealth
creation and improve company performance.