Ownership Distribution and Shareholder Value Creation in Indian Stock Markets: A Note

Impact of Firm-specific Attributes on Shareholder Value Creation of Indian Companies: An Empirical Analysis

“…The studies which tried to identify the value drivers, emphasized associate shareholder value with specific financial or strategic attributes only. For instance, Kakani (2001) studied the relationship between ownership distribution and shareholder value creation in Indian stock markets and identified that one should prefer those stocks in which owners and managers have a good management record and have invested more of their time and money and also hold a larger stake in the firm. Venkateshwarlu and Kumar (2004) empirically studied the relationship between non-market value performance indicators and market value, with a view to understand the value creation process in Indian enterprises.…”

“…While the EVA of a company is a historical figure based on the efficiency with which it used the resources at its disposal in a particular year (that is, wealth created in a year), its MVA is the market assessment of its ability to create wealth in the future (Stewart, 2000). Moreover, a number of researchers like Boasson and Boasson (2005), Kakani (2001) and Rashid (2008) argued Tobin’s Q Ratio to be the most appropriate measure of value creation. Hence, in the present study, three surrogates of shareholder value creation, that is, EVA, MVA and Tobin’s Q have been selected and studied as dependent variables.…”

“…The phenomenon can be explained by the resource constraints and financing problems of small firms. Kakani et al (2001) empirically tested that an increase in the size of a firm, apart from increasing its profit margin and its profitability, also reduced its risk. All these factors led to an increase in the firm’s shareholder value.…”

“…Varaiya et al (1987) found that both profitability and growth influence shareholder value, but profitability has a greater impact. Kakani et al (2001) also found that a higher profit margin implies that the firm enjoys significant market power and hence can reap what economists call ‘producers surplus’ or ‘rents’. Moreover, Glenning and Goth (2007) revealed that the most striking differentiating factor of top-quartile companies’ performance in terms of total shareholder return (TSR) has been their ability to grow revenues strongly.…”

“…Pandey (2006) empirically found that economic profitability has a positive correlation with growth, size and capital intensity; it has a negative correlation with beta and leverage (two determinants of a firm’s risk). On the other hand, since the market value of a firm is a function of its return, given the level of risk (cited from Fruhan, 1979 and quoted in Kakani et al, 2001), risk of a firm becomes an important determinant of its valuation and hence of its shareholder value.…”