Determinants of Financial Performance of Indian Corporate Sector in the Post-Liberalization Era: An Exploratory Study

National Stock Exchange of India Limited, NSE Research Initiative Paper No. 5

20 Pages Posted: 30 May 2006

See all articles by Ram Kumar Kakani

Ram Kumar Kakani

Lal Bahadur Shastri National Academy of Administration (LBSNAA)

Biswatosh Saha

Indian Institute of Management Calcutta

V. N. Reddy

Institute of Chartered Financial Analysts of India (ICFAI) - The Icfai University (IFHE), Hyderabad

Date Written: November 2001

Abstract

This paper attempts to provide an empirical validation of the widely held existing theories on the determinants of firm performance in the Indian context. The study uses financial statement and capital market data of 566 large Indian firms over a time frame of eight years divided into two sub-periods (viz., 1992-96, and 1996-2000) to study Indian firms' financial performance across various dimensions viz., shareholder value, accounting profitability and its components, growth and risk of the sample firms. It reveals that even on the same data, the determinants of market-based performance measures and accounting-based performance measures differ due to influence of 'Capital Market Conditions'. We found that size, marketing expenditure, and international diversification had a positive relation with a firm's market valuation. Apart from these firm attributes that reflect either operating parameters of firms or 'strategic choice' of firm managers, we also found that a firm's ownership composition, particularly the level of equity ownership by Domestic Financial Institutions and Dispersed Public Shareholders, and the leverage of the firm were important factors affecting its financial performance. The different implications of the findings for various stakeholders of a firm are also discussed.

Keywords: Financial Performance, India, Determinants, Shareholder Value, Profitability, Growth, Risk

JEL Classification: L10, N25, G30, D21

Suggested Citation

Kakani, Ram Kumar and Saha, Biswatosh and Reddy, Vanga Nagi, Determinants of Financial Performance of Indian Corporate Sector in the Post-Liberalization Era: An Exploratory Study (November 2001). National Stock Exchange of India Limited, NSE Research Initiative Paper No. 5. Available at SSRN: https://ssrn.com/abstract=904983 or http://dx.doi.org/10.2139/ssrn.904983

Ram Kumar Kakani (Contact Author)

Lal Bahadur Shastri National Academy of Administration (LBSNAA) ( email )

Mussorie, Uttarakhand 248179
India

Biswatosh Saha

Indian Institute of Management Calcutta ( email )

E-110, NTB
Joka, Diamond Harbour Road
Calcutta, West Bengal 700104
India

Vanga Nagi Reddy

Institute of Chartered Financial Analysts of India (ICFAI) - The Icfai University (IFHE), Hyderabad ( email )

Donthanapally Shankarapalli Road
RAJAWALA ROAD
Hyderabad, RI Andhra Pradesh 501203
India

Register to save articles to
your library

Register

Paper statistics

Downloads
1,460
Abstract Views
5,110
rank
12,464
PlumX Metrics