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Similar reasoning explains why earnings have been found to better explain stock returns and firm values than cash flows, even though firm values can alternatively be modeled in discounted (free) cash flows (see, e.g., Gary C. Biddle, Gim S. Seow and Andrew F. Siegel, "Relative versus Incremental Information Content," Contemporary Accounting Research (Fall 1995), 1-23). 6 Stern Stewart also advocates a second performance metric based on (4b). Subtracting BVt from both sides yields “market value added” (MVA), a measure of the equity value created by management beyond contributed equity capital, expressed in terms of discounted expected residual income:

MVAt = Vt − BVt = ∑

τ =∞

RI t +τ . A “Performance 1000” ranking based on MVA has appeared τ τ =1 (1 + k )

annually in Fortune since 1993. 7 R. Myers, "Metric Wars," CFO, Vol. 12 (October 1996), 41-50. Performance measures marketed by competing firms include cash-flow return on investment (CFROI) by HOLT Value Associates, total business return (TBR) by Boston Consulting Group, shareholder value added (SVA) by LEK/Alcar, discounted economic profits (EP) by Marakon Associates, and economic value management (EVM) by KPMG. See also Christopher D.

Components of residual income for what are termed “accounting anomalies” or “distortions”.8 Some of their more common adjustments are shown in Table 1. Some of these adjustments undo traditional accounting accruals (such as eliminating deferred tax accounting in favor of actual cash taxes paid). Other adjustments switch accrual methods (e.g. from LIFO to FIFO). Still others introduce new accruals not used in traditional GAAP-based accounting (e.g., capitalization and amortization of marketing and R&D expenditures). Stern Stewart argues that these EVA adjustments produce a better measure of residual income that enhances comparability and also corrects distortions of managerial incentives introduced by standard GAAP accounting.9 For example, certain adjustments remove or reduce managers’ discretion in computing EVA (e.g., the opportunity to influence bad debt accruals). Others adjustments reduce incentives to make operating, investing and financing choices that boost earnings and EVA in the short term, but reduce shareholder wealth. Examples of such myopic decision-making include cutbacks in positive-NPV capital investments, marketing and R&D expenditures.10 These adjustments are particularly relevant when executive pay is closely linked to EVA – a situation that can produce incentives for short-term ‘gaming.’ Other mechanisms used in conjunction with EVA to help control ‘short-termism’ include bonus banks and EVA-based stock option plans. [insert table 1 about here]

David F. Larcker, “Innovations in Performance Measurement: Trends and Research Implications” Journal of Management Accounting Research, Vol. 10 (1998), 205-238. 8 Stern Stewart has developed over 160 proprietary adjustments to NOPAT and CAPITAL (although generally only a few are employed in each client application). 9 They also undoubtedly increase marketing effectiveness by creating a proprietary measure available only from St本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。