Decoding the Source of Value: Evidence from Listed Companies in India

Abstract

Based on the sample of S&P BSE 500 companies for a period of data from year 1999 to 2019, this study investigates the source of value for a sample if listed Indian companies. Specifically, the study investigates how companies that creates long term value for their shareholders acts differently from the companies that destroys value. The findings of the study suggest that, (i) listed Indian companies mostly creates value for shareholder through capital appreciation rather than cash transfer through dividend payout, (ii) even though no significant difference was found in the stated capital management policy of high performing companies and low performing companies, significant difference was found in the ability of those companies in efficient utilization of their capital, specifically, high performing companies were consistently able to utilize their capital more efficiently when compared to low performing companies, (iii) no such difference was found in the ability of these two group of companies to raise those capital at reasonable costs, (iv) the strategy adopted by high performing companies were mainly profitable growth through investing capital, simultaneous fix, grow and sell strategy on ongoing basis and focused acquisitions whereas among low performing companies, there was some evidence of aggressive growth strategy adopted by these companies, which was subsequently followed by liquidation and consolidation of business.