DOI:

Abstract

This study is to investigate the influence of inflation on the effectiveness of the Economic Value Added (EVA) which an investor may employ to quantify the value generated by a company. However, inflation can distort EVA and potentially result in inefficient allocation of resources and policy on rewards. This study will look into the adjusted and nominal EVA in order to measure the business performance as reflected in stock returns, stock market prices and operating cash flows. Some 142 non-financial companies have been invited to join this study and 332 observations were undertaken from 2007 to 2009. The findings have shown that the adjusted EVA seems more sensitive to inflation than the nominal EVA. In other words, the latter is distorted by inflation. Thus, Vietnamese business managers should consider thoroughly before integrating EVA into measuring the business performance, especially when inflation rate has galloped over the past few years.

Keywords

Economic Value Added (EVA); Inflation; Business Performance.