Indian capital market has undergone a radical transformation, both in terms of its behavior and rationality. Market valuation of securities listed on the Indian Stock Exchanges is more aligned to the intrinsic value today than it has been in the past. The objective of this research is to study the relationship that exists between the wealth of shareholders, which has traditionally been recognized as the goal of business firms, and various standard measures of firms’ financial performance. Basic thrust of the study is to establish the supremacy of EVA as a measure of financial performance over the traditional measures. The hypothesis of this study is that of the nine chosen independent variables, EVA is the single most significant explanatory variable in explaining the variation in the Market Value Added and it finds a better reflection in the market value of the share as compared to the traditional measures of financial performance. The above hypothesis is tested on the time series data of BSE-100 companies. The period of the study is five years, beginning from the Financial Year 1998-99 and ending with Financial Year 2002-03. Cross-sectional analysis of the sample firms has been done for the period of study (from 1998 to 2003) using the tool of Regression Analysis.

Creating value for shareholders is now a widely accepted corporate objective and many leading companies world over have accorded value creation a central place in their corporate planning. The Economic Value Added (EVA) model proposed by Stern Stewart and Co., is one of the most prominent value-based management technique that has gained currency since the second half of 1990s. Fotune magazine has called it “today’s hottest financial idea and getting hotter” and management guru Peter Drucker refers to it as a measure of total factor productivty. Companies across a broad spectrum of industries and a wide range of countries have joined the EVA bandwagon. EVA measures whether the operating pofit is enough compared to the total costs of capital employed. It essentially seeks to measure a firm’s actual rate of return as against the required rate of return.