EVA,not EBITDA: A New Financial Paradigm for Private Equity Firms

Private equity firms have boomed on the back of EBITDA. Most PE firms use it as their primary measure of value, and ask the managers of their portfolio companies to increase it. Many public companies have decided to emulate the PE firms by using EBITDA to review performance with investors, and even as a basis for determining incentive pay. But is the emphasis on EBITDA warranted? In this article, the co‐founder of Stern Stewart & Co. argues that EVA offers a better way. He discusses blind spots and distortions that make EBITDA highly unreliable and misleading as a measure of normalized, ongoing profitability. By comparing EBITDA with EVA, or Economic Value Added, a measure of economic profit net of a full cost‐of‐capital charge, Stewart demonstrates EVA's ability to provide managers and investors with much more clarity into the levers that are driving corporate performance and determining intrinsic market value. And in support of his demonstration, Stewart reports the finding of his analysis of Russell 3000 public companies that EVA explains almost 20% more than EBITDA of their changes in value, while at the same time providing far more insight into how to improve those values.     

Family income and child outcomes in Canada

Abstract.  A positive relationship between income and child outcomes has been observed in data from numerous countries. A key question concerns the extent to which this association represents a causal relationship as opposed to unobserved heterogeneity. We use data from the National Longitudinal Survey of Children and Youth to implement a series of empirical strategies for estimating the existence and size of the effect of income on three measures of cognition. Our results indicate that the effect of income on these outcomes may well be positive, but that it is likely to be smaller than conventional estimates. JEL Classification: I10     

Simulating the Evolution of the Implied Distribution

Motivated by the implied stochastic volatility literature (Britten–Jones and Neuberger, forthcoming; Derman and Kani, 1997; Ledoit and Santa–Clara, 1998) this paper proposes a new and general method for constructing smile–consistent stochastic volatility models. The method is developed by recognising that option pricing and hedging can be accomplished via the simulation of the implied risk neutral distribution. We devise an algorithm for the simulation of the implied distribution, when the first two moments change over time. The algorithm can be implemented easily, and it is based on an economic interpretation of the concept of mixture of distributions. It can also be generalised to cases where more complicated forms for the mixture are assumed.     

An appropriate model for joint regional action in southern Africa after apartheid

Market‐based integration is not appropriate to the joint development of the southern African region; the region's political, technical and institutional immaturity requires instead loose, function‐based economic cooperation. This will also facilitate intraregional trade. Subregions in the meantime could progress to higher levels of integration: international experience has shown that successful integration is most likely when it takes place on the basis of ‘regions within regions’. Cooperative development of the subcontinent is likely to be best achieved through the ‘concentric circles’ approach to regional cooperation, in which a revised Southern African Customs Union‐Common Monetary Area forms the highly integrated core of a loose, function‐based cooperative arrangement covering the whole of southern Africa.     

Educating business schools about safety & health is no accident

This paper summarizes the consequences of safety and health inattentiveness, and reviews four primary dangers in the workplace. In addition, perspectives of employee health and safety are presented from industry and academia which provide the basis for a strong recommendation to include safety and health issues in business school curricula. Wayne H. Stewart's areas of research and teaching interest include Social Responsibility in Management, Entrepreneurship, and International Business. Wayne is currently on the editorial board of the International Journal of Case Studies, and has published in the Journal of Management Learning, as well as participating in several academic conferences. Donna E. Ledgerwood is currently the Secretary for the Southern Management Association. Donna was President of the Southwest Academy of Management in 1993 and served as the Academy of Management's Director of Exhibits/Publisher Relations and Director of Advertising from 1983–1991. Having written one of the first articles on sexual harassment in 1980, Donna serves on the Editorial Review Board for the Journal of Business Strategies and has published in the Labor Law Journal, the Monthly Labor Review, and the Personnel Administrator. Ruth C. May's areas of expertise are International Business, Business Policy and Strategy and International Human Resource Management. Specializing in the transfer of Western management practices to the former Soviet Union, Ruth is currently involved in the development of training programs and privatization processes in central Russia. She has published in the Academy of Management Executive, Multinational Business Review, and Socialist Labor (Russia).     

Negotiating the Evolution of the Hr Function: Practical Advice From the Health Care Sector

This paper has two aims. First, to consider explanations for the apparent gap between the paradigm of strategic human resource management on the one hand and actual HR practice on the other. Second, to generate practical advice for senior HR specialists who are aspriring to develop a strategic role for their function. the research underpinning these findings was based on case studies in three hospitals in Adelaide and a comparison of the findings with the situation at Leicester General NHS Trust where the first named author of this article was the HR director and a senior board member. the analysis reveals that specific features of each organisation's history, current structure and management, shape powerfully the nature of the HR function. Moreover, the local shaping factors define the degrees of freedom open to the HR function, so much so, that the notion that it can choose its organisational stance is here challenged.     

Wage-Tenure Contracts in a Frictional Labour Market: Firms' Strategies for Recruitment and Retention

A common assumption in equilibrium search and matching models of the labour market is that each firm posts a wage, to be paid to any worker hired. This paper considers the implications of firms posting contracts , in a random matching model with on-the-job search. More complex contracts enable firms to address both recruitment and retention problems by, for example, increasing the wage with tenure. The effect on the labour market is to reduce turnover, below the level required for efficient matching of workers to firms.