Capital Cost Analysis of EVA Evaluation in State-owned Enterprises
|School||Institute of Fiscal Science|
|Keywords||State-owned Enterprise EVA Cost of Capital|
During the30years of reforming and opening up, China’s state-owned enterprise business efficiency and management level has been improving continuously after the company and stock type reform. Investors put more attention to the value creation than the financial index as income and profit, which can’t reflect of the enterprise business performance objectively.EVA is a performance evaluation system which stresses on the enterprise value. It can more truly reflect the enterprise performance and it is helpful for the sustainable development of the enterprises. State-owned Assets Supervision and Administration Commission of the State Council (SASAC) fully implemented EVA since2010.The evaluation results are significant. As China’s capital market and corporate governance structure are not perfect, EVA assessment system especially the calculation of the cost of capital exist many defects, which seriously impact on the implementation effect of EVA. This paper makes a further discussion about this defect.This paper firstly makes a comparison of the cost structure before and after the introduction of EVA, demonstrated that the EVA evaluation system is the real profit metrics, which fully reflects the company’s total capital costs, and enhances awareness of the investor’s capital. The current cost of capital proposed by the SASAC exist some irrational aspects. This paper analyses the calculation principle of the cost of capital in the foreign-funded enterprises, private enterprises and state-owned enterprises after they introduced the EVA evaluation system. Main points of this paper are the state-owned enterprises should adopt bond yield adjustment method to calculate the cost of equity capital. In addition, they should also take into the impaction of account inflation, bank lending rates and the ultimate control of human. At the end, they should implement differential and floating cost of capital based on the difference in the industry, changes in economic conditions and social average cost of capital. Finally, this paper proposes the related reform measures from the three-pronged as state-owned enterprises, government and social evaluation to improve the efficiency of the state-owned enterprises.