Value-Based Management and Economic Performance Metrics
Summary
Value-Based Management (VBM) is an overarching framework that aligns corporate strategy, decision-making and performance measurement with the ultimate goal of maximising shareholder value. By integrating economic performance metrics—such as Economic Value Added (EVA), Market Value Added (MVA) and Residual Income (RI)—with traditional accounting indicators, VBM ensures that resource allocation and capital budgeting explicitly account for the full cost of capital and the risk profile of investments. Recent advances have extended this approach to settings characterised by variable discount rates and evolving market conditions, reinforcing the importance of dynamic valuation in sectors as diverse as renewable energy, manufacturing and services. In practice, value-based metrics inform incentive systems, guide divestiture and acquisition decisions, support sustainability assessments and foster more transparent communication between managers, investors and other stakeholders. As global competition intensifies and environmental, social and governance criteria gain prominence, the rigorous application of VBM and related performance metrics has become central to corporate governance, strategy execution and long-term value creation.
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Value-Based Management and Economic Performance Metrics publication trend
The graph below shows the total number of articles in value-based management and economic performance metrics across all publications each year (not limited to Nature Index journals).
Technical terms
Economic Value Added (EVA): A residual income metric calculated as net operating profit after tax minus a charge for the full cost of capital employed.
Market Value Added (MVA): The difference between the market value of a firm’s equity and debt and the capital contributed by shareholders and debt-holders, reflecting value creation since inception.
Residual Income (RI): Profit remaining after deducting a capital charge on the book value of equity, often used as the basis for EVA and other performance measures.
References
- Does the EVA valuation model explain the market value of equity better under changing required return than constant required return?. Financial Innovation (2020).
- Does value-based management facilitate managerial decision-making? An analysis of divestiture decisions. Management Accounting Research (2021).
- Economic Value Added Research: Mapping Thematic Structure and Research Trends. Risks (2022).
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