Determinants of economic value added (EVA) in Chinese listed banks

Abstract

Purpose

The purpose of this paper is to examine the determinants of the EVA performance evaluation model for the Chinese banking industry. The authors investigate the impact of six bank-specific factors and corporate governance factors on financial performance.

Design/methodology/approach

The authors use the ordinary least square regression to examine the determinants of the EVA performance evaluation model for the Chinese banking industry. The findings are generally robust to alternative proxies of performance.

Findings

The empirical results indicate that credit risk, operational efficiency and the degree of innovation are positively related to banks’ EVA while capital management has a negative impact on it. In addition, although board size and independent directors are not related to the bank’s EVA, from the perspective of the traditional performance evaluation indicators, executive compensation has a positive impact on the bank’s profitability.

Research limitations/implications

This paper has some limitations. First, due to the large number of adjustments to accounting items are required in the application of EVA when evaluating business performance, some items of the EVA model in this paper have been simplified, which may cause the bank’s EVA value to deviate slightly from the actual situation. Moreover, the sample includes only listed banks, so our results cannot generalize to non-listed banks, such as some small- and medium-sized commercial banks.

Originality/value

This paper contributes to the limited body of literature concerning the use and the determinants of EVA in emerging markets. The authors construct an EVA model which is suitable for China’s banks and reports comprehensive evidence on the drivers of EVA as a measurement tool.

Citation

Zhang, J. and Aboud, A. (2019), "Determinants of economic value added (EVA) in Chinese listed banks", Asian Review of Accounting, Vol. 27 No. 4, pp. 595-613. https://doi.org/10.1108/ARA-11-2018-0216