Corporate governance and the relationship between EVA and created shareholder value

The purpose of this paper is to find out whether governance mechanisms approximated by the board of directors' characteristics, auditors' quality, ownership structure and compensation mix, can help bridge the gap between economic value added (EVA) and market values approximated by created shareholder value (CSV).

Based on a sample of US firms and using available data for EVA, discriminant analysis and stepwise regression are used to test whether governance characteristics explain the differences between the results provided by the two measures of performance.

The results show that governance characteristics are important in explaining the differences between the results provided by CSV and EVA and that board independence, the auditors' expertise and reputation, the ownership structure and the stock‐options contribute significantly in explaining these differences.

The results are very relevant to academicians and practitioners concerned with performance measurement. They basically underline the importance of including governance characteristics in any evaluation formula.