CHAPTER - II

REVIEW OF LITERATURE

Introduction:

An attempt is made to present the literature related to the topic of research.

A comprehensive literature review about shareholder value creation in general is
beyond the scope of the study. Instead, the results of some empirical studies about
shareholder value creation are highlighted. It should be noted here that a substantial
amount of attention has been given by researchers to the specific industry, whereas
less attention has been given to the selected companies in various industrial sectors
which is the emphasis of this study. However, almost all these studies have been
dealt with shareholder value creation. The review helps to shape the study and
identify the research gab.

Miller and Modigliani (1961)1 found that the value of the firm is unaffected by the
dividend policy in a world without taxes and the transaction cost and where everyone
was fully informed about the distribution of the firms uncertain cash flows.

Gordon Donaldson (1985)2 advocated the importance of managing for superior

shareholder value by identifying value drivers and using the same to reduce the value
gap by concentrating on RONA, growth, retention rate and debt equity ratio.
Balachandran et al (1986)3 and Copeland et al (1990)4 have dealt with the issue of
shareholder value creation. In all the papers the basic proposition is that shareholder
value of alternative business strategies, including growth and expansion, can be
estimated by discounting cash flows from strategic investments by an appropriate
discount rate.

Peterson and Peterson (1996)5 analysed traditional and value added measures of
performance and found that traditional measures are not empirically less related to
stock returns than return on capital. Hogan et al (1999)6 state that in a competitive
environment, shareholder value is created when a company invests in projects that

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earn a return in excess of the cost of capital. Knight (1997)7 said that higher
profitability does not guarantee value creation for shareholders in a company. Clark
(2000)8 added that what is important is that a company adhering to shareholder value
principles concentrates on cash flows rather than profits.

Kramer and Pushner (1997)9 tested the hypothesis that EVA is highly correlated
with MVA. Their study concluded that no clear evidence to support the contention
that EVA is the best internal measure of corporate success in adding value to
shareholder investments.

Anand et. al. (1999)10 revealed that EVA, REVA (Refined Economic Value Added)
and MVA are better measures of business performance than NOPAT and EPS in
terms of shareholders’ value creation and competitive advantage of a firm.

Ben Nacauer and Goaieded (1999)11 investigated the determinants of value creation
among listed Tunisian companies. Their result indicates that the firm values are
positively and significantly correlated with profitability. Pandey (2005)12 tested the
effect of profitability on shareholder value (measured as the Market to Book (M/B)
ratio). They find a strong positive relationship between profitability and the
shareholder value creation.

Dalborg (1999)13 pointed out that value is created when the return to shareholders, in
dividend and share price increases, exceed the risk-adjusted rate of return required in
the stock market.

Fernandez (2001)14 analyzed the shareholder value creation of listed company,

General Electric between 1991 and 1999. He concluded that in order to obtain the
created shareholder value, first it must be defined the increase of equity market value,
the shareholder value added, the shareholder return, and the required return to equity.
He also calculated the created shareholder value of 142 American companies during
the three- year period 1997-1999 and during the eight- year period 1992- 1999.

Petty and Martin (2001)15 stated that value creation involves much more than
merely monitoring firm performance. Value is created when managers are actively

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engaged in the process of identifying good investment opportunities and taking steps
to capture their value potential. Pablo Fernandez (2002)16 is of the opinion that
accounting based measures (including EVA, Economic Profit, Cash Value Added),
being historic in nature does not measure value creation.

Worthington and West (2001)17 reviewed the literature on EVA and provided a
synoptic survey of EVA’s conceptual underpinnings. They concluded that empirical
evidences concerning EVA have been mixed. There is strong need for research over
a longer time frame to allow greater empirical certainty on the status of EVA as a
corporate performance measure.

Harmsen and Jensen (2004)18 conducted a study at the end of which they found a
relationship between market demand and company competencies. The method is
based on the concept of managerial cognition. By use of two methods, 27 characters
of the market and 28 companies’ competencies were determined and then, by a
cognitive re-exhibit manner, by main industrial informers, related to company
competencies, which affected value creation in the market.

Karam Pal Singh and Mahesh Garg (2004)19 examined the disclosure of EVA in
Indian corporate. Their study revealed that out of 50 companies, only 32 companies
have generated positive EVA and 18 companies have destroyed their shareholders’
wealth in 1998.

Madhu Malik (2004)20 examined the relationship between shareholder wealth and
certain financial variables like EPS, RNOW and ROCE. By using correlation
analysis, it was found that there was positive and high correlation between EVA and
RONW, ROCE.

Izadiniya (2005)21 in a study, analyzed traditional accounting norms for

investigating financial reports of business units and found that by respect to changed
conditions due to global economy, the main challenge of managers of business
corporations is value creation for shareholders, specially wealth creation for them,
which in the main index for value creation and performance appraisal is economic
value added and free cash flow norms.

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Panigrahi (2005)22 examined how the Economic Value Added (EVA) is superior to
Market Value Added (MVA). They examined by financial performance of ITC Ltd,
which has adopted the EVA as its performance measurement. Their study found that
by increasing Economic Value Added (EVA), Shareholder Wealth is created and
established the fact that the Economic Value Added (EVA) is superior to the Market
Value Added (MVA).

Singh (2005)23 examined an appropriate way of evaluating bank’s performance and

also found out which Indian banks have been able to create (or destroy) shareholders’
wealth since 1998- 1999 to 2002-2003. Their study is based on 28 Indian private and
public sector banks that are listed on the Bombay Stock Exchange (BSE). They
suggested that the relationship between EVA and MVA is statistically significant.
Their study showed that impressive performance in terms of EVA by banks such as
State Bank of Bikaner and Jaipur, Jammu and Kashmir Bank, Global Trust Bank and
Indusind Bank.

Viswanadham and Poornima Luthra (2005)24 measure the shareholder value

creation by using the Strategic Profit Model (SPM) and the Economic Value-Added
(EVA to measure shareholder value). SPM measures the Return On Net Worth
(RONW) which is defined as the Return On Assets (ROA) multiplied by the financial
leverage. EVA is defined as the firm’s Net Operating Profit After Taxes (NOPAT)
minus the capital charge. Both, RONW and EVA provide an indication of how much
shareholder value a firm creates for its shareholders, year on year. With the
increasing focus on creation of shareholder value and core competencies, many
companies are outsourcing their Information Technology (IT) related activities to
third party software companies. They can compare the financial data obtained from
the models, and use peer average data to provide customized recommendations for
each company to improve their shareholder value. Assuming that the companies
follow these rules, they also predict future RONW and EVA for the companies for
the financial year 2005. Finally, they make several recommendations to software
providers for effectively competing in the global arena.

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Bhayani (2006)25 studied economic value added of Cholamandalam Investment and
Finance Co. Ltd for the period of 1998-99 to 2002-03. The company has been
successfully able to create value for its shareholders. The company’s earnings are
much higher than the overall cost of capital. The traditional performance indicators
are showing quite high values of ROCE, EPS growth as compared to EVACE. It is
observed that the traditional parameters indicated quite a flushed and healthy picture
of the company during all five years of the study.

Ghanbari and Sarlak (2006)26 studied economic value added in Indian automobile
industry. They found that the Economic Value Added (EVA) of only 30% of the
selected companies is positive and 70% of the selected companies have destroyed
their shareholders wealth by negative EVA. Their study concluded that there has
been a significant increasing trend in EVA of the Automobile Industry firms which
means that companies have a positive trend to improve their firm values.

Hejazi and Maleki (2007)27 focused the measures on which there could be valued
shareholders’ wealth. They analyzed the relation between cash value added and price
to earnings ratio to future return on stock of 85 companies in Tehran Stock Exchange
during 2005-2007. The results of the study indicated that informative context price to
earnings ratio is higher than cash value added related to future return.

Husted and Allen (2007)28 searched if Corporate Social Responsibility (CSR) led to
competence and value creation. Although government leaders insist publicly that
CSR projects create value for the firm, privately they admit that they do not know if
CSR pays off. They examined the impact of three strategic CSR variables–visibility,
appropriability and voluntarism- on value creation among large Spanish corporations.
They suggest that managers need to understand how CSR is similar to and different
from other traditional corporate market activities if they are to pursue value creation
through CSR.

Lichtenstein and Dade (2007)29 sought to redress the current situation by proposing
that the needs and values of leaders and executives drive the vision, goals and
strategies to create shareholder value. The aim of their paper was to build on previous

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executive values research, by examining the impact of how the values of one
executive value group, translate into methods of creating shareholder value and
proposing the linkage between leaders values and shareholder value. First, a
theoretical background is provided. Next, the results of empirical research into
executive values are briefly reviewed and combined with data and insights from
proprietary market research to discuss how the needs and values of one executive
value group impact on strategic leadership factors driving shareholder value creation
methods. This is followed by proposing a conceptual framework illustrating the
linkages between leaders’ values and shareholder value creation with propositions.

Rajeshkumar (2007)30 had analysed the study on “Creating, measuring, enriching

and managing shareholder value – The Indian experience”. He has found that for an
action to create value it has to do one or more of the following like increase the cash
flows generated by existing investments, increase the expected growth rate in
earnings and increase the length of the high growth period and reduce the cost of
capital that is applied to discount the cash flows.

Ramachandra Reddy and Yuvaraja Reddy (2007)31 examined the effect of

selected variables on MVA. Their study was conducted with 10 cement companies in
India and the objective of this study was to examine the effect of select variables on
MVA by using Multiple Regression technique. Their study found that none of the
factors is found to have impact on MVA and EPS is found to have negative and
significant impact on MVA. Their study concluded that the performance of select
cement companies in terms of profitability cannot be increased unless the improved
problems like modernization, cost reduction, control taxes etc., are solved.

Rizvan Hejazi and Malektaj Maleki Usokuei (2007)32 had undertaken the study on
“The information content of cash value added and P/E Ratio: Evidence on
association with stock returns for industrial companies in Tehran Stock Exchange”.
He has found that there are variations in the results. The first set of analysis evaluate
the correlation of CVA and P/E Ratio with stock return found that P/E ratio had not
powerful correlation with stock returns.

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Yen and Andre (2007)33 provided empirical evidence on the relation between
concentrated ownership and the long term operating performance of acquiring firms.
They investigated the performance around 287 takeovers in English-origin countries
other than US. Their principal finding was that the relationship between concentrated
ownership and the level and change in operating cash flow returns after takeovers is
non-linear. Value creating deals are associated with higher levels of concentration
consistent with decreasing agency costs as the dominant shareholder’s wealth
invested in the acquiring firm increases. They also found, although all acquiring
firms are from English-origin countries, that there is greater investor protection, as
measured by the updated anti-director rights index.

Anju Sheth (2009)34 analysed the study on “Institutions, the theory of the firm and
value creation; Evidence from the acquisition activity”. He had found that, the
merger and an acquisition activity plays an important role to create the value of the
firm as well as the value of the shareholders.

Arets, Kevin, Bartram and Sohnke M. (2009)35 studied on “Corporate hedging and
shareholder value” had found that corporate risk management cannot increase
shareholder value in the world hedging at the firm level can create value to the
benefit of shareholders in the presence of real world capital market imperfections,
such as direct and indirect cost of financial distress, costly external financing and
taxes.

Nanda Ramanujan (2009)36 examine the study on “Shareholder Value Analysis”

had found that best way of shareholder value creation is to break it down in to a
series of small scale metrics. She also suggests that the shareholder value creation is
not a short term notion but it’s a long term notion.

Sakthivel and Arjunan (2009)37 conducted study on “Value creation in Indian paper
industry: An analysis” Their study clearly revealed that there is a positive
relationship between EVA and MVA in the paper industry. They concluded that the
value creation based on the EVA happened on a year-to-year basis in respect of
companies of the paper industry.

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Sujata Kappor (2009)38 evaluated the study on “Impact of dividend policy on
shareholder value: A study of Indian firms” had found that as the dividend decision is
he important decision it can’t be manage with higher share price. She also found that
in Indian financial managers view dividend decision as an important part of their job.

Chauhan and Bhayani, (2010)39 has examined the impact of mergers on

shareholder value creation in Indian industry. Their study includes companies which
have undergone merger during the period 1st April, 1999 – 31st March, 2000. There
are about 196 merged companies in India during above period and we have selected
56 firms for the research to examine pre and post merger performance of firms
covered under the study. They suggest that firm’s shareholders value creation is
highly dependent on Operating expenses, Profit margin, ROCE and Expense ratio.
The inter company and inter industry analysis results indicate there is no positive
impact of mergers on shareholder value creation.

Jalaja (2010)40 compared the value creation of old generation companies with new
generation companies by adopting Pablo Fernandez model. His study considered the
sample of 50 companies representing ten industrial sectors for a period of five years,
from 2002 to 2006. The result showed that the old generation companies (companies
representing the industry sectors- Steel, Sugar, Oil & Gas, Textiles and Cement)
created more shareholder value than new generation companies (companies
representing the industry sectors- Pharmaceuticals, Automobiles, IT, FMCG and
Capital Goods). There was found to be a positive correlation between shareholder
value creation and market capitalization in 44 companies out of a sample of 50
companies, but the degree of correlation varies. There is strong correlation in 23
companies, moderate level of correlation in four companies and weak correlation in
17 companies and the correlation is negative in six companies. According to
empirical evidence it was so proved that shareholder value creation does not depend
on the size of the company (measured in terms of market capitalization).

Khatik and Singh (2010)41 studied economic valued added in 10 selected companies
of India for the period of 1998-99 to 2007-08. The results of the study indicate there
are no any uniform EVA trends in selected firms.

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Sharma and Kumar (2010)42 have analyzed effectiveness of Economic Value
Added in selected companies for the period of 2001-02 to 2008-09. They used
traditional measures along with EVA to measure effectiveness of the firm. The result
of statistical tools reveals that except few majorities of the sample companies are able
to continuously create value for their shareholders during the study period. They
found that EVA is gaining popularity in India as important measures of firm
performance.

Mahdi Salehi, Hashem Valipour and Zahra Yousefi (2011)43 measuring

shareholder value creation has been the subject of discussion all around the world. It
has become crucial since companies are increasingly committed to creating
shareholders’ value. The aim of their study is to induce voluble measures to users and
increase their understanding. They obtained by using informative contexts
comprising accounting and economic measures for those purpose. The main
hypothesis and the sub-hypotheses are tested and 92 companies listed in Tehran
Stock Exchange are selected in the four year period (2005 to 2009). The results of the
study reveal that according to the findings, there is meaningful relationship between
economic measures and value creation.

Sakthivel (2011)44 conducted a study on “Shareholders’ Value in Indian

Pharmaceutical Industry: An Empirical Analysis”. He concluded that the companies
under pharmaceutical industry has succeeded to meet public expectations in terms of
shareholders’ value creation through EVA either by increasing operating income
from assets in place through reducing cost of production or increasing sales, or
reducing the cost of capital by changing the financing mix in capital structure.

Abdoli et al. (2012)45 studied the relationship between every independent variable,
including Economic Value Added (EVA) and residual income as the representatives
of economic models with shareholders value creation. The sample size of the
statistics is 85 companies. They used simple and multi-variable regression methods
to analyze the data. The results showed that both residual income and the Economic
Value Added (EVA) have a significant relationship with the shareholders’ created
wealth. However, in relation to created shareholder value, the residual income

25
criterion seems to be more significant. The difference between the impacts of the two
variables raised due to accounting adjustments through which the effect of accrual
accounting is being eliminated, therefore, it is considered as a considerably better
criterion for the evaluation of performance and increase in shareholder’s value.

Amalendu Bhunia (2012)46 examined the relationship between shareholder’s value

and financial variables. They tested whether value based frameworks are applicable
in Indian condition as popularly believed with the application of valuation methods.
As the corporate’ most vital objective at this moment is to maximise shareholder
value, establishing a relationship between the financial variables and the corporate
objective is imperative. Their study is based on secondary data obtained from the
various data sources including CMIE prowess database for the period from 1996 to
2010. A sample of 155 top companies has been taken from Indian industries during
the period spanning 1996-2010. In the course of analysis, linear regression, factor
analysis and multiple discriminant analysis have been modeled. Empirical results
show that effect shareholder value creation might lead to more information and
insight. Although large sample statistical research of the type of this study was a
powerful means of identifying the general relationships between pairs of variables.

Chauhan (2012)47 analyzed the shareholder’s value creation in the Indian petroleum
industry. The Indian petroleum industry is mostly dominated by private sector firm
and public sector firm. He had analyzed the performance of the company. Petroleum
industry was divided into private sector firms and public sector firms. He had used
MVA, PAT, NOPAT, EVA, EPS and market capitalization data which was provided
by CMIE Prowess database, for the period of 10 years, from 2001-02 to 2010-11. For
all seven companies, the 10-year correlation between EVA of each year and every
year’s NOPAT, MVA, PAT, EPS and market capitalization was calculated. t-test was
applied to test the hypothesis in the present research. EVA was found to have
significant correlation with NOPAT, EPS, OP, Market capitalization and MVA
figures of the firm of both sectors. Both sectors have created a positive EVA and
MVA in the study.

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Sharma and Satish Kumar (2012)48 evaluate value based financial performance
measures like Economic Value Added (EVA), Shareholder Value Added (SVA) has
attracted the attention of investors, policy makers and researchers in the recent time
due to their superiority and ability to reflect the true valuation of the companies.
Investor’s in developing countries are shifting their attention from traditional
mandated corporate performance measures like NOPAT, EPS to value based mainly
to EVA in while analyzing the performance of the companies and making investment
strategy. The main objective of this study is to examine whether Economic Value
Added (EVA) can be used as a tool of performance measures while investing in
Indian market and provide evidence about its superiority as a financial performance
measure as compared to conventional performance measures in Indian companies. To
achieve this, performance of the Indian listed manufacturing companies is compared
with traditional mandated corporate financial performance measures used in
investment analysis. The result of their study reveals that investor should use EVA
along with traditional measures in firm valuation and making investment strategy.

Bhasin (2013)49 explored that the main goal of financial management is to maximize
the shareholder’s value. The main objective of the study is to examine whether or not
the sample companies have been able to generate value for its shareholders and also
to analyze the effectiveness of EVA over the conventional and traditional measures
of corporate performance. Various statistical tools like ANOVA, regression analysis
and trend analysis were used for analyzing the data. The study indicated that EVA is
superior to the traditional performance measures in its association with MVA.

Dharmendra S. Mistry, Saket Kumar Singh and Shruti Singh (2013)50 attempt to
measure the relationship between shareholders’ value i.e. residual income measures
and financial variables. They found that the majority of the selected variables for
their study differ significantly among selected pharma players except traditional
value measure i.e. P/E Ratio.

Haque et al. (2013)51 made an attempt to study the relationship between dividend
payouts and Economic Value Added (EVA), an indicator to shareholders wealth
creation, introduced by United States based consultants Stern Stewart and Company,

27
New York, in 1990s, using data of Square Pharmaceutical Limited (SPL), one of the
largest pharmaceutical companies in Bangladesh, for the periods 2004-05 to 2010-11.
They concluded that there is an inverse relationship between dividend payouts and
EVA, using the simple regression equation method, and also recommended that SPL
should continue the existing dividend policy of retaining a bulky portion of earning
rather than a high payout ratio.

Mistry et al. (2013)52 measured the relationship between Shareholder’s value, that is,
residual income measures and financial variables. According to the results of the
company, the majority of the selected variables of the study differ significantly
among selected pharmaceutical players, except traditional value measures, that is,
P/E ratio. They found that shareholders’ value can be predicted by the selected
financial variables.

Murthy (2013)53 analyzed the performance of TCS and INFOSYS with regard to its
shareholder wealth maximization. To study the performance of ROE, Du Pont
Analysis has been applied. The basic objective to select the two companies is to
understand and apply the concept of value creation in the two companies with
different factsheet. According to the study, TCS has provided consistent return to
their equity shareholders on their investment, even more than Infosys.

Omah .I, Okolie J.U and Dr. (Mrs). Durowoju S.T, (2013), 54 attempts has been on
the study of the impact of mergers and acquisitions on the shareholders wealth. Their
study specifically companies which have undergone merger during the period 2001
to 2010. There are about 20 consolidated banking industries in Nigeria during the
above mentioned period and they considered all for the study to examine pre and post
merger and acquisition performance of the specified banks. They suggested that
shareholders value creation is highly dependent on operating expenses, profit margin,
Return On Capital Employed (ROCE) and Expenses ratio. The inter-company and
intra-industry analysis results indicate that there is marginal positive impact of
mergers and acquisitions on shareholder value creation.

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Pratapsinh Chauhan and Vijay K Patel (2013)55 maximizing shareholders wealth
is becoming the new corporate standard in India. Shareholders’ wealth is measured in
terms of the returns they receive on their investment. Traditionally, the yardsticks
used to measure the efficiency and profitability of a business organization were
accounting based measures like ROI, ROE, ROCE, EPS, RONW and financial ratios.
But, now a day’s value added measures have emerged as a replacement of the
traditional accounting based measures. The reason behind this is that the financial
performance of a business organization is measured from the shareholders’ value
point of view. Value added represents the wealth created by an enterprise during a
specified period. No companies can survive and grow, if it fails to generate value to
its existing and potential shareholders. Hence, value added is a basic measure which
is used for measuring the financial performance of an enterprise. By keeping this in
mind, this study is an attempt to analyze the value creation in Indian Pharmaceutical
Industry from 2000 to 2009 by using regression analysis.

Tian et al. (2013)56 made an attempt to measure the value-creation ability of the
enterprises. EVA was applied to analyze the value-creating ability of the whole blue
economic zone based upon the accounting report data from 2009-2011, by taking the
listed companies in the Shandong Island blue economic zone. Thereafter, a
comparison regarding the value-creating ability of these listed companies was
proposed in the view of the industry. As a result, the ability to create value of the
listed companies in the Shandong island blue economic zone had shown an
increasing tendency during the last three years. The EVA rate, which is an index
which can reflect capital efficiency, increased at first and started decreasing
afterwards. However, there showed a huge gap between the different industries.

Vijayalakshmi and Manoharan (2013)57 carried out an empirical study which

examined the impact of the leverage on shareholder value creation of the Indian
miscellaneous manufacturing sector. For corporate growth, shareholder value
creation has become a focusable area. Because the shareholders are the ultimate
owners of the enterprises, every firm has to construct a capital structure keeping in
mind the objective of shareholder’s wealth maximization. Miscellaneous
manufacturing sector is said to be a capital intensive sector, where a greater emphasis

29
is laid upon designing the capital structure. The period for which the study was
conducted was 1995-96 to 2009-10. To analyze the data a panel approach has been
applied. According to the results of the study, the leverage has a significant influence
on the shareholders value creation.

Jaya M (2014)58 investigate the strength of the relationship between EVA and other
traditional accounting measures such as Earnings Per Share (EPS), Dividend Per
Share (DPS) and Return On Capital Employed (ROCE) relative to Market Value
Added (MVA). The results are of interest to financial managers and analysts because
it provides a way to identify the driver(s) of value with the strongest impact on MVA
may be extremely helpful in developing financial strategies that can optimize value
creation for shareholders. The correlation and regression analysis has been done to
find out the relationship between the MVA and EVA and traditional measures. It is
interesting to note that Market Value Added Per Share (MVAPS) is explained
significantly by the traditional measures than the Economic Value Added Per Share
(EVAPS) share. The traditional measures alone are capable of explaining the 91 per
cent of variance in MVAPS significantly at 1 per cent level while only 32.2 per cent
by Economic Value Added per share measure. The results strongly argue in favour of
the traditional measures in explaining the market value of the company. The
fundamentals of the company strongly play a vital role in deciding the market value
of the company. Hence an investor should keep this in mind while selecting his
investment with a specified company.

Bhargav Pandya (2015)59 had undertaken study on “shareholder value creation: an

overview” found that the shareholder value creation approach helps to strengthen the
competitive position of the firm by focusing wealth creation. It provides an
objectives and the consistent framework of evaluation and decision making across all
functions, department and units of the firm.

Pooja Sharma and Abhay Grover (2015)60 explore and study the shareholder’s
value creation in Indian companies as measured by EVA and to determine the key
factors that have an impact on shareholders’ value creation. In the present study we
have taken dividend and capital structure as independent variable and EVA as

30
dependent variable. Regression technique has been used in order to examine the
impact of Dividend and Capital structure on Shareholder Value Creation (SVC). The
study reveals that both Dividend and Capital structure have influence on the
Shareholder Value Creation. It is also found that mostly all companies are having
positive EVA which indicates that these companies are not only thinking about profit
maximization but also focusing on the objective of wealth maximization.

Siddhartha Sankar Saha and Mitrendu Narayan Roy (2015),61 empirically

analyses business performance of Indian computer software industry over the years
2003-04 to 2012-13 with the help of Return Of Investment (ROI) and Economic
Value Added (EVA) of select 10 companies in this industry. A comparative analysis
of ROI and EVA reflected in these companies is made using some statistical tools
like average, Standard Deviation, Maximum and Minimum values and Coefficient of
Variation. It is observed that Tata Consultancy Services (TCS), Infosys and Wipro
are the top companies in this industry in terms of their ROI and EVA. One way
ANOVA conducted to analyse the significant difference among select companies in
terms of their ROI and EVA shows that select companies are significantly different.
Pearson’s Correlation Coefficient (r) between ROI and EVA depicts a strong positive
correlation between these two business performance indicators. Significance of this
correlation is then tested using t test. The result suggests that the correlation between
ROI and EVA is not significant in this industry. Impact of EVA and select economic
variables on ROI is analysed with the help of Multiple Regression Analysis.
Standardised regression coefficients for each predictor variables estimated based on
Ordinary Least Square Method indicate the relationship between each predictor
variable and ROI. Significance of regression coefficients are tested using t test. It is
observed that variables like Net Operating Profit after Tax, Capital Employed, Net
Sales, etc. significantly influence ROI in this industry. Adjusted Coefficient of
Multiple Determinations (R2) shows a strong association between ROI and its
predictor variables. Finally, the model perfectly fits the data according to one way
ANOVA result.

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Summary of the Chapter:

The detailed review of literature provides useful insights to related issues.

Very few studies have been conducted in India to measure the shareholder value
creation. It is clearly indicated from the above literature that in India no industrial
sectors of specific index of the study has been conducted to examine the trend of
shareholder value creation. In the above context, there is a need for a comprehensive
and elaborative research to measure shareholder value creation. This gap in the
literature is the primary and strong motivation for the study. Hence, an attempt has
been made by the researcher in the present study to measure the shareholder value
creation of selected companies in National Stock Exchange. The next chapter
explains the theoretical aspects of shareholder value creation.

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