Decoding the source of value: evidence from listed firms in India

Abstract

Purpose

The objective of the study is to investigate the factors that differentiate long-term shareholder value (LTSV) creating firms from LTSV destroying firms.

Design/methodology/approach

Through the review of literature, the hypothesis for the study is developed. To test the hypothesis, the study collects data from S&P BSE 500 companies listed in Bombay Stock Exchange (BSE). Based on the average overall return to shareholders for the period from year 1991 to 2019, the study identifies top 25 LTSV creating and LTSV destroying firms. The top 50 firms form the basis of this study. The study uses descriptive statistics and independent sample t-test to test the hypothesis of the study.

Findings

Among the variables investigated such as capital management policy and effective capital management practices, business and financial strategy, intellectual capital strategy, relational capital strategy and human capital strategy, the study found effective capital management and governance as a long-term source of value for shareholders.

Research limitations/implications

The study highlights the importance of inclusion of value-relevant information in the annual report of the company. The study also supports the proposition that discretionary disclosure of intangible assets is relevant for the market to enable market participants to reasonably comprehend the fair value of the firm.

Practical implications

Adoption of a reporting framework that ensures the availability of all value-relevant information including off-balance-sheet resources is in the interest of the investors and policymakers alike.

Originality/value

This is a first such study exploring the value-relevant information and the source of long-term value for listed firms.

Citation

Mishra, S.K. (2024), "Decoding the source of value: evidence from listed firms in India", Business Analyst Journal, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/BAJ-02-2024-0004

Introduction

Value-based management (VBM) is a management philosophy that intends to change the behavior of people and process responsible for the decisions and actions that create long-term value (LTV) for shareholders (Pettit, 2007). Even though maximizing LTV for shareholders is an integral part of the vision of most of the business, many businesses fail to imbibe this philosophy into actions and decisions. This may be due to the fact that (1) strategies and their execution are premised on flawed measures and metrics leading to value destructions/sub-optimization (Pettit, 2007); (2) valuation becomes harder to discern at the more granular level of the business portfolio (Pettit, 2007); (3) the deployment and execution of value-based strategies requires countless economic value-based decisions to be made at all levels within the business, and hence, providing decision-makers at all levels with the right information and incentives is a prerequisite for the success of VBM (Koller, 1994); (4) lack of progressive accounting practices reduces the possibility of sound economic analysis of decisions and (5) lack of engagement at all levels (Pettit, 2007). Hence, VBM necessitates an integration of value creation mindset with the management process and systems that translate this mindset into actions (Koller, 1994).

Even though managing for value with a focus on shareholder primacy is the underlying philosophy of most businesses (Wobst, Tanikulova, & Lueg, 2023) and chief executive officers (CEOs), most of the academic literature has mainly confined to the advancement of metrics and measurements (Pettit, 2007). There is a dearth of literature on how businesses translate VBM philosophy into actions and communicate those actions through appropriate reporting in its annual report to enable the shareholders to adequately capture the source of value during the valuation of the firm. The objective of this study is to fill the aforementioned gap in the literature. Specifically, the objective of this study is to investigate (1) the source of value for a sample of S&P BSE 500 companies and (2) understand the difference in the business philosophy and actions of persistently value creating business from value destroying business.

The next section reviews the literature on VBM and the inability of earning-based approaches in discerning the value of a firm, in which based on the critical review of literature, the major sources of value for a firm are discussed and the hypothesis is proposed. The third section discusses the research methodology utilized in this study. The subsequent section discusses the results of this study. In the fifth section, the implications of the findings of this study for various stakeholders, limitation of this study and direction of future research are discussed. Finally, the study is concluded.

Literature review

An understanding of the value-based decision is important for investors to discern between the long-term shareholder value creating (henceforth LTSV creating) and long-term shareholder value destroying (henceforth LTSV destroying) strategies. Hence, there is a felt need that the financial disclosure practices should equip the investors with the necessary tool to make value-appropriate judgment when doing valuation of a business. Evidence suggests that earning-based valuation approaches are falling short in their ability to discern between the value creating and value destroying firms (Pettit, 2007). Furthermore, firms resort to value-based performance measures only when there is a high information asymmetry (Bruck, Knauer, & Schwering, 2022). The possible explanation for the inability of the conventional valuation approach failing short in explaining the share price may be due to the numerous reasons. First, resources as reflected in the balance sheet may not truly represent the fair assessment of the firm’s capability (LuschR & Harvey, 1994) and value-based decisions of the management. Specifically, the quality and experience of personnel and management, corporate culture, supply chain and distribution competency, brand equity, technology, research and development competency and knowledge (LuschR & Harvey, 1994) and the quality of governance are not adequately represented in the financial statement of a firm. Even though these resources significantly contribute in the value creation process for shareholders, they are inadequately represented in the financial statement of the firm. Second, empirical evidence suggests that business strategies significantly influence the disclosure strategy of a firm (Lim, Chalmers, & Hanlon, 2018). Hence, the firm reporting goals, language choice in narrative disclosures, discretionary disclosures component of annual report and the readability may be significantly influenced by the disclosure strategy of the firm (Asay, Libby, & Rennekaamp, 2018). Hence, there is a felt need for an adoption of disclosure practices that allow the investor to discern the value-relevant information. Integrated reporting framework (2013) is an attempt to relate the firm’s financial and ESG performance in a single report (Melloni, Caglio, & Perego, 2017). Adoption of a reporting framework that ensures the availability of all value relevant information including off balance sheet resources is in the interest of the investors and policymakers alike. Next, an assessment of the existing reporting framework for major on-balance-sheet and off-balance-sheet resources of a firm and its ability to discern between LTV creating and value destroying firm is discussed.

Effective financial capital management as a source of value

Empirical studies on value-based management have a focus on shareholder primacy (Wobst et al., 2023). Firms may deliver LTV to shareholders through effective financial capital management (Aktas, Croci, & Petmezas, 2015). Most of the elements of capital assets are balance sheet items, and hence, discerning the effectiveness of financial capital management is relatively easier for the shareholder viz-a-viz off-balance-sheet items. Typically, an assessment of the effectiveness of financial capital management may be adequately captured through economic value added (EVA). Three main drivers of EVA include operating income adjusted for taxes, weighted average cost of capital and capital employed. Hence, access to low cost capital and efficient deployment of the capital positively contribute to EVA. Several studies have been conducted to access the superiority of EVA over accounting-based conventional measure. While several studies have supported the aforementioned proposition (Athanassakos, 2007; Ehrbar, 1999), an equal number of studies have reported contradictory results (Alipour & Pejman, 2015; Kim, 2006; Sura, Panchal, & Lather, 2022). The following hypothesis is proposed to test the difference in the effectiveness of financial capital management by LTV creating and value destroying company.

Hence, it is hypothesized that

H1.

Significant difference exists in EVA by LTSV creating firms and LTSV destroying firms.

H2.

Significant difference exists in return on invested capital (ROIC) of LTSV creating firms and LTSV destroying firms.

H3.

Significant difference exists in weighted average cost of capital (WACC) of LTSV creating firms and LTSV destroying firms.

H4.

Significant difference exists in financial leverage of LTSV creating firms and LTSV destroying firms.

Effective intellectual capital management as a source of value for firms

Intellectual capital is typically an off-balance-sheet resource owned by the firm. This includes the intellectual property assets such as patents and trademarks among others. These intellectual property assets have the potential to generate future cash flow for firms and hence value for shareholders. Different firms may follow a distinct strategy to develop own and utilize intellectual property assets. Intellectual assets may be generated through collaboration with various stakeholders to co-develop products, services and solutions (Belderbos, Carree, & Lokshin, 2004), conduct in-house research and development (R&D) (Bhattacharya, Emeka, & Pradeep, 2021) and engage in technical collaboration and outsourcing (Veugelers, 1997) and R&D contracting (Veugelers, 1997). Accounting rule necessitates most of the expenditure related to intellectual capital creation such as R&D expense, fee for technology transfer, royalty and license fee be treated as cost and expense as incurred. The underlying principle for the above treatment is a priority of objectivity in measurement over relevance of the expenditure. A few jurisdictions provide discretion to the firm to capitalize or expense their expenditure related to R&D (Chan, Faff, & Gharghori, 2007). Several studies have been conducted to access the impact of R&D expenditure and disclosure on shareholder value (David & Baruch, 2000; Ciftci & Zhou, 2014; Chan, Martin, & Kensinger, 1990). Empirical studies have suggested that mandatory R&D disclosures have intended and unintended consequences. The intended consequences of a mandatory R&D disclosure are to first provide value-relevant information to investors/shareholders (Alice, 1996; Ciftci & Zhou, 2014) and second reduce information asymmetry and hence discourage insider trading (David & Baruch, 2000). The unintended consequences of mandatory R&D disclosure are first the attention from media and analysts and pressure from institutional block holders, leading to a shift in energy and resources from LTSC creating activities to short-term and quick-return innovation (Huang, Liu, Chan, & Chen, 2023) and second the potential of appropriation by rivals (Ciftci & Zhou, 2014). Hence, in a country with strong protection of intellectual properties (Ciftci & Zhou, 2014) and a firm with stronger governance (Cianci, Convery, Evans, Hugehn, & Werner, 2021), the LTV relevance of R&D disclosure is likely to be high (Ciftci & Zhou, 2014). Furthermore, regardless of the accounting method used to capture R&D intensity (i.e. whether R&D expenditure is expensed or capitalized), a firm with a high level of R&D intensity is likely to generate higher shareholder value than a firm with low R&D intensity (Chan, Faff, & Gharghori, 2007). Hence, it is hypothesized that

H5.

Significant difference exists in the R&D intensity of LTSV creating firms and LTSV destroying firms.

Effective supply chain management as a source of value for firms

An effective supply chain is built on careful assessment of upstream and downstream supply chains to develop partnership, collaboration and contract leading to persistent delivery of product and service to the end customer effectively and efficiently. This requires an investment in capabilities related to physical assets, information technology (IT) systems and people. The accounting rule necessitates the expenditure related to investment in people and most of the expenditure in information technology (IT) system be expensed as and when incurred. Investments in capability related to physical assets are typically capitalized as a part of the block of assets and are not easy to distinguish from other assets with similar characteristics. Hence, discerning the source of value emanating from supply chain capabilities is difficult until a firm separately reports the supply chain capability/relational capital as a part of its annual report explicitly justifying how supply chain capability is likely to create LTV for the shareholders. Hence, supply chain competency is an important off-balance-sheet resource for a firm (Gunasekaran, Patel, & McGaughey, 2004), which is likely to have a positive impact on LTSV of a firm (Srivastava, Shervani, & Fahey, 1999). This is due to numerous reasons. First, supply chain competency leads to a more resiliency to supply chain disruption. Hendricks and Singhal (2003) empirically found that supply chain disruptions negatively impact the long-term share price and equity risk premium. Second, supply chain competency is likely to result in reduction in cash-to-cash cycle and a lower level of investment is supply chain finance (Ali, Gongbing, & Mehreen, 2019). Based on the above, it is hypothesized that

H6.

Significant difference exists in the supply chain efficiency of LTSV creating firms and LTSV destroying firms.

H7.

Significant difference exists in the cash-to-cash cycle of LTSV creating firms and LTSV destroying firms.

Effective marketing management as a source of value for firms

Marketing and brand management creates relational capital, specifically with customers for the firm. However, a few firms separately disclose the key drivers of relational capital and how it is likely to deliver value to shareholders. Accounting rule necessitates most of the expenditure related to marketing and brand building be treated as cost and expense as incurred. The underlying principle for the above treatment is a priority of objectivity in measurement over relevance of the expenditure. Furthermore, empirical evidence suggests that effectiveness of marketing and brand management has a positive impact on shareholder value through reduction in the vulnerability and volatility of cash flow to the firm (Srivastava et al., 1999). Hence, it is likely that LTSV creating firms are more likely to deploy their marketing budget more efficiently, viz-a-viz value destroying firms. It is hypothesized that

H8.

Significant difference exists in the marketing and promotional expense efficiency of LTSV creating firms and LTSV destroying firms.

Effective human capital management as a source of value for firms

For many firms, human capital is critical for delivering LTV for the shareholders. There is a growing concern among researchers about inadequate value-relevant disclosure of human capital by public firms (Zingales, 2002; Eisfeldt & Papanikolaou, 2013). Hence, incomplete information on the potential of human capital in delivering value for shareholders limits the ability of investors to adequately capture the same in the valuation process (Crouzet, Eberly, Eisfeldt, & Papanikolaou, 2022). However, empirical evidence supports the value relevance of human capital disclosure by the firm. Regier and Rouen (2023) found that market partially incorporates the ability of human capital in delivering value for shareholders. Hence, it is hypothesized that effective human capital management is critical for delivering LTV for shareholders.

H9.

Significant difference exists in the human capital performance of LTSV creating firms and LTSV destroying firms.

Effective governance as a source of value for firms

Corporate governance refers to the framework of rules and practices through which the board of directors ensures accountability, fairness and transparency in a company’s relationship with all its stakeholders (Godrej Consumer Products annual Report 2021–22; Godrej Consumer Products Limited (2022), p. 255). Empirical evidence suggests a positive association between good governance practices and creation of long-term shareholder wealth (Villar, Lopez, & Penas, 2016). Effective governance is also likely to develop effective financial reporting system and is likely to maintain an oversight and control over the financial reporting system of the firm. Most of the empirical studies assessing the governance effectiveness have focused on board size, composition, independence, diligence (Villar et al., 2016) and compliance (Islam, Mishra, & Srivastava, 2020). However, there have been many instances where the conventional measures have failed to capture the governance failure at a firm, resulting in significant erosion in the value of shareholders. It is hypothesized that effective governance is critical for delivering LTV for shareholders.

H10.

Significant different exists in the governance effectiveness measured through miscellaneous expenses of LTSV creating and LTSV destroying firms.

Overall, earning-based valuation approaches are falling short in their ability to discern between the value creating and value destroying firms as the resources as reflected in the balance sheet may not truly represent the fair assessment of the firm’s capability (LuschR & Harvey, 1994). Specifically, the quality and experience of personnel and management, corporate culture, supply chain and distribution competency, brand equity, technology, research and development competency and knowledge (LuschR & Harvey, 1994) and the quality of governance are not adequately represented in the financial statement of a firm. Hence, there is a felt need to assess the ability of the off-balance-sheet items in delivering value to shareholders. This study intends to fill the aforementioned gap in the literature.

Data and methods

This study utilized the data of S&P BSE 500 firms (i.e. those firms, which are listed in Bombay Stock Exchange (BSE) and are included in broad based index of S&P BSE 500) for the period from year 2000 to 2019. After excluding the non-financial firms, the usable sample size for the study was 420 firms, which forms the basis for this study. The following steps were followed in stage one of this study. First, the closing share data for the sample firms were collected from the website of BSE (source: www.bseindia.com). Next, the data related to important corporate actions, which include share-split, spin-off, rights issue, buyback, bonus shares and dividend per share, were collected from the same source. Online brokerage firm website moneycontrol.com (source: htpps://www.moneycontrol.com) was utilized to extract the data, which was not available on the website of BSE. The annual return for individual company was calculated as follows:

Rii=[(Pit – Pi(i−1)+DIVit]/ P i(i−1)

where

• R_it is the annual return for the ith company share in the tth year

• P_it is the closing share price for the ith company in the tth year

• P_i(i−1) is the closing share price for the ith company for the preceding (t−1)th year

• DIV_it represents the total dividend (interim plus final) paid by the ith company in the tth year

Furthermore, the return was adjusted for the share-split for the period in which share-split took place. Empirical evidence suggests that on ex-split date, the share price of the firms adjusts in proportion of share-split ratio. Table 1 summarizes the descriptive statistics related to the annual return of the sample firms for the period from year 2001 to 2019. Average return during the sample period was found to be 41.40% (SD = 25.30%).

Next, the proportion of return attributable to dividend and proportion of return attributable to capital appreciation were estimated for the sample firms by splitting the return into its components (i.e. return attributed to dividend during the period DIV_i and return attributed to capital appreciation during the period (Pi – P _(i−1)). This was utilized to assess the contribution of dividend and capital appreciation in offering return to the shareholders.

Sample size and sample collection

The overall objective of this study is to empirically investigate the source of value for S&P BSE 500 firms. For each of the non-financial firms of S&P BSE 500, the risk-adjusted return was computed. Based on the risk-adjusted return, two groups of sample firms were identified. Group one consists of firms with the highest average risk-adjusted return for the period from 2001 to 2019 and was termed as an LTV creating company. The second group of firms consisted of those 25 firms with the lowest risk-adjusted return during the same period, termed as an LTV destroying company. Only those S&P BSE 500 firms which had a return history of more than five years were considered for the above classification. Tables 2 and 3 summarize the sample firms included in both the groups. These 50 firms form the basis for the next stage of the study.

Next, the hypothesis related to the difference in the above two independent sample was investigated using two independent sample t-tests.

Results

Source of value for investors

The sample firms were grouped into four groups based on their overall average return during the sample period. Furthermore, for each group, the firms were further segmented according to (1) firms with positive average dividend payout and negative average capital appreciation, (2) firms with positive average dividend payout and positive average capital appreciation, (3) firms with no dividend payout and negative capital appreciation and (4) firms with no dividend and positive capital appreciation. Table 4 summarizes the return attributed to dividend and return attributed to capital appreciation for each segment of firms in all four groups of firms.

There was a significant difference in the average overall return between the firms in the lowest quartile and the highest quartile. For the lowest quartile firms, the average overall return was 11.2%, wherein 1.89% return was attributable to dividend and 9.46% attributable to capital appreciation. For the firms in the highest quartile, the average overall return was 72.60%, of which 70.49% of the return was through capital appreciation. For all samples, the return was 38.29%. Further, 95.73% of return was attributed to capital appreciation. Hence, the evidence suggests that the capital appreciation was the major source of return for the investors. Furthermore, only a few firms in the lowest quartile (15 out of a sample of 88 firms); there was on an average negative capital appreciation. For all other firms of S&P BSE 500, the average capital appreciation was positive during the sample period. Overall, the findings suggested that the listed firms mostly create value for shareholders through capital appreciation rather than cash transfer through dividend payout.

Independent sample t-test results

Economic value added (EVA) of long-term value creating and long-term value destroying firms

EVA for LTV creating and LTV destroying firms were estimated. Findings suggest significant difference in the average EVA of value creating (mean = ₹1,853m; SD = ₹8,317m) and value destroying (mean = ₹−22,122m; SD = ₹44,650m) firms. An independent sample t-test was utilized to statistically investigate the difference in the EVA by the two groups of firms. The investigation was made for the period from FY 2015 through 2019. As shown in Table 5, there was a significant difference in the EVA of LTV creating and LTV destroying companies [t_{5-year average} (25.66) = 2.63, p < 0.05]. Hence, the findings support the proposition that EVA offers value-relevant information to the market (Athanassakos, 2007; Wajeeh, 2006).

Effective financial capital management as a source of value

Utilization of funds as a source of value

An independent sample t-test was utilized to investigate the difference in the performance of the two groups with respect to the drivers of EVA in the company. Specifically, the ROIC and WACC were investigated. The investigation was made for the period from FY 2015 through FY 2019. First, an independent sample t-test was conducted to assess the difference in ROIC of the two independent groups of firms (i.e. LTV creating and LTV destroying firms).

Among the LTV destroying group, the ROIC of L3 company was found to be an outlier (i.e. ROIC = 441.58 %). Further investigation revealed that this extremely high ROIC of L3 was on account of low/negative capital primarily due to accumulated negative equity in the balance sheet of the company. Hence, the ROI of the company was replaced with the sample mean to overcome the effect of this outlier. The independent sample t-test results suggest significant difference in the ROIC of LTV creating firms from LTV destroying firms [t_{5-year average} (42.16) = 2.773, p = 0.000].

Table 5 summarizes the overall results of the test of the hypothesis related to financial capital as a source of value for firms.

Ability to raise capital at a low cost as a source of value from financial capital management

Firms may also deliver value for shareholders by their ability to raise the capital at a reasonable cost. Next, an independent sample t-test was conducted to assess the cost of funds (WACC) for these two groups of firms. As shown in Table 5, no significant difference in the cost of funds (i.e. WACC) was found among LTV creating firms (mean = 24%; SD = 13%) and LTV destroying firms (mean = 24%; SD = 19%) [t_{5-year average} (42.55) = −1.030, p > 0.05]. This supports the inadequacy of the financial market for debt and equity to adequately capture the riskiness of the firm. As the debt market price the funds based on the credit rating of the borrower, the credit rating of the sample firms was investigated for the financial year 2019 to assess the difference in the rating of LTV creating and destroying sample firms. Table 6 summarizes the rating of both groups of firms.

Furthermore, significant difference was found in the rating of two groups of firms. The average rating of shareholder value creating companies was found to be between S&P/Moody’s equivalent (source: Bank for International Settlement (2023)) AA+/Aa1 and AA/Aa2, whereas the average rating of value destroying companies was found to be between A/A2 and A-/A3 rating, which was significantly different [t (20.86) = −5.081, p < 0.05]. For the study, equity risk premium was estimated based on the levered beta of the firms, whereas market risk premium was kept at 13% (based on the average market return during the sample period). Hence, an independent sample t-test was conducted to assess the ability of the equity market to adequately capture the riskiness of the firm using a statistically significant beta value of value destroying and value creating firms. Five-year average beta of value creating firms was on average 0.79 (SD = 0.43), and that for value destroying firms was on average 1.28 (SD = 0.66). Furthermore, statistically significant difference was found in the average levered beta of these two groups of firms [t_{5-year average} (39.18) = −3.078, p < 0.05]. Hence, it may be concluded that on average, equity market adequately captured and priced the riskiness of the above two groups of sample firms. The significant difference in the credit ratings and equity risk premium/beta did not explain for the insignificant difference in the average cost of capital for the above two groups of firms. The possible reason may be the use of book value risk weight for debt when estimating the WACC (Damodaran, 2004).

Overall, independent sample test results suggest that among the two key drivers of EVA, the ability of the firms to efficiently utilize its capital is more likely to differentiate and drive the LTV for the shareholders than the availability of the capital at a reasonable cost.

Financial leverage as a source of value for firms

Finally, an independent sample t-test was conducted to assess the aggressive debt financing measured through debt to equity ratio for the two groups of firms. As shown in Table 5, there was a significant difference in the debt-to-equity ratio of LTV creating firms (mean = 0.19; SD = 0.27) and LTV destroying firms (mean = 1.50; SD = 2.93) [t_{5-year average} (23.379) = 2.185, p < 0.05]. Hence, sample firms that destroyed the LTSV were on average more levered than those firms creating LTSV.

Capital management policy as a source of value

To assess the stated capital management policy of LTSV creating firms and LTSV destroying firms, the capital management policy of the sample firms was collected from the annual report of these two groups of firms. The stated capital management policy was assessed with respect to its stated objective to explore whether any significant difference exists in the stated capital management policy of these groups of firms. Tables 7 and 8, respectively, summarize the excerpts from the capital management policy of LTSV creating firms and LTSV destroying firms along with the stated objectives of the policy. Specifically, the stated objective was broadly grouped into shareholder wealth maximization, safeguard ability to continue as a going concern, manage growth, maintain stakeholder confidence and maintain strong credit rating and availability of funds at competitive costs. Assessment of stated capital management policy suggests that (1) both groups of sample firms had the same level of impetus on shareholder value maximization and safeguarding the ability to continue as going concern; (2) LTSV creating firms explicitly focused more on maintaining growth than LTSV destroying firms and (3) LTSV destroying firms explicitly focused more on availability of funds at a competitive cost than LTSV creating sample firms. When compared with the relatively poor credit rating of LTSV destroying companies, the focus on availability of funds at a competitive cost was a key policy objective of the management and was included in the stated capital management policy.

Financial strategy as a source of value

Tables 9 and 10 summarize the business/financial strategy for growth of LTSV creating firms and LTSV destroying firms based on the assessment of the financial report for merger/acquisitions/and amalgamations, capital expenditure in green filed projects and liquidation/sale of assets by the sample firms. LTSV creating firms primarily grew through inorganic growth strategy (79.1%), followed by organic growth (45.83%). A few firms also focused on the growth through consolidation (16.67%) and sale of assets (12.5%). Furthermore, evidence was found related to aggressive capital management by LTSV destroying company, where these groups of firms were engaged in an aggressive growth strategy followed by liquidation. This was contrary to strategy adopted by LTSV creating companies, wherein profitable growth through investing capital, simultaneous fix and grow and sell strategy was followed on an ongoing basis.

Results related to effective intellectual capital management as a source of value for firms

Investment in R&D is expected to generate positive value for the firms by creating intangible assets in the form of new products, technologies and process. Investment in research and development has a long-term investment horizon and follows a virtuous cycle wherein availability of resources allows firms to investment in R&D, which in turn is likely to generate future resources through the commercial application of these outcomes. Hence, it is likely that firms with high internal accruals are likely to invest more in R&D activities and vice versa. Accounting standards necessitate a company to expense its R&D expenses. While estimating R&D intensity of firms, both the revenue and capital expenses were included. Finally, those expenses were adjusted for turnover. The difference in the R&D intensity of LTSV creating and LTSV destroying firms was assessed using an independent sample t-test. The data pertaining to annual R&D expenditure were collected from the annual report for the respective sample firms for the five-year period (i.e. FY 2015 through FY 2019). Specifically, the difference in the R&D intensity was assessed for each period as well as the entire period under consideration using 5-year average annual R&D expenditure as the percent of annual sales turnover. As shown in Table 11, independent sample t-test results do not suggest any significant difference in the R&D intensity of LTV creating firms from LTV destroying firms. However, due to the lack of adequate disclosure, R&D intensity was measured on cost basis rather than on value basis. Firms may also follow distinct strategy for access to technology. This includes in-house R&D and technology transfer. Typically, a company relying on technology transfer pays royalty/licensing fee/fee for technology transfer. Among the sample firms (LTV creating), H1 and H2 did not incur R&D expenditure but paid royalty. Similarly, H4, H6, H8, H10, H11, H13 and H18 incurred R&D expenses as well as paid fee for technology transfer. Similarly, among LTV destroying companies, L24 did not incur R&D expenditure but paid royalty for technology transfer, whereas L5, L7 and L18 incurred both R&D expense and expense for technology transfer through licensing fee and royalty. Furthermore, investigation suggested that the transactions with respect to royalty/licensing fee were primarily with related parties.

Disclosure of intellectual capital separately may offer value-relevant information to the market (Alice, 1996; Ciftci & Zhou, 2014). Specifically, the disclosure of the sensitivity of value with the level of R&D intensity along with the key assumptions may offer actionable value-relevant information to the market. However, this necessitates strong protection of intellectual capital rights. Huang et al. (2023)found that R&D disclosure, due to attention from media and analysts and pressure from institutional block holder, leads to a shift in the resources from LTSV creating activities to short-term and quick-return innovation. Other researchers have also advocated against expectations creating disclosures practices. Firms with an effective governance system should be able to adequately able to handle the unintended consequences of value-relevant intellectual capital disclosure. There is a felt need for further research to understand fully the value-relevant disclosure practices related to intellectual capital.

Results related to effective supply chain management as a source of value for firms

Investment in supply chain capability positively impacts the financial performance of the company. This study captured supply chain strategy through the intent of the company to invest in supply chain, which was measured through the selling and distribution expense as a proportion of turnover. Higher proportion was considered as a proxy measure of positive attitude of management towards supply chain ability to drive value. This may be correct for those firms that have the ability to efficiently utilize the capital. Next, the effectiveness of the supply chain strategy was measured through cash-to-cash cycle. Table 11 suggests that average selling and distribution expense as a proportion of turnover among the two group of firms were significantly different [t_{5-year average} (38) = 2.280, p < 0.05]. Specifically, on average, the selling and distribution expense of an LTSV creating firm was significantly higher (4.37%) than that of an LTSV destroying company (1.68%). When linked with the ability of an LTSV creating firm’s to efficiently utilize the capital, the above suggests the high impetus on supply chain investment by the above group of firms. However, as shown in Table 11, no significant difference was found in the cash-to-cash cycle of the above two group of firms [t_{5-year average} (44) = 0.963, p > 0.05]. The above findings suggest that LTSV creating firms were able to less efficiently and effectively utilize the supply chain–relevant expenditures than LTSV destroying companies.

Results related to effective marketing management as a source of value for firms

Marketing and brand management creates relational capital. However, a few firms separately disclose the drivers of relational capital and how it creates the value for the shareholders. This study utilized the information available in the financial reports related to marketing and promotion expenses and measured its effectiveness through marketing and promotion expenses as a proportion of sales turnover to assess the marketing effectiveness of the LTSV creating and LTSV destroying firms. As shown in Table 11, no significant difference was found in 5-year average selling and distribution expense as a proportion of turnover among high and LTV destroying firms [t_{5-year average} (40) = 0.373, p > 0.05].

Results related to effective human capital management as a source of value

Human capital may be critical for a large number of firms in delivering LTV for the shareholders (Regier & Rouen, 2023). However, a few firms separately disclose the value-relevant information related to human capital. The inability to disclose value-relevant information related to human capital limits the ability of investors to adequately capture the same during the valuation process (Crouzet et al., 2022). In the absence of value-relevant information related to human capital, this study captured the effectiveness of human capital management through employee expense as a proportion of sales turnover to investigate the difference in the human capital effectiveness among value creating and value destroying firms. Overall, no significant difference was found in 5-year average employee expense as a proportion of turnover among high and LTV destroying firms [t_{5-year average} (25.64) = −1.85, p > 0.05] (Table 11).

Results related to effective governance as a source of value

Impact of good governance on the LTSV is widely acknowledged. However, measuring the effectiveness of governance is a challenge. This has resulted in development of a plethora of metrics and measurement index to measure good governance practices. Furthermore, most of these metrics and indexes use the publicly available data related to the firm from the mandatory report on governance performance of the firms. This has limited the ability of the researchers to adequately capture the governance effectiveness of the firm. This study utilized miscellaneous expense as a proportion of turnover as an indicator to assess the effectiveness of governance. The above indicator was utilized due to the fact that effective governance enables effective control over financial reporting, which allows the stakeholder, specifically investors, to make an informed decision. Furthermore, accounting standards necessitate a firm to disclose all material information separately to enable the readers to make informed judgment about the financial performance of the firm. High amount of miscellaneous expenses as a proportion of sales turnover suggests inadequate control over financial reporting and may be used as a proxy measure to assess the effectiveness of governance.

An independent sample t-test was used to assess the difference in the miscellaneous expense of value creating and value destroying firms. Table 11 suggests significant difference in average miscellaneous expense as a proportion of turnover among the two group of firms [t_{5-year average} (41.92) = 2.327, p < 0.05].

Table 12 summarizes the test results of the hypothesis of the study. The findings suggest the following. (1) There is a significant difference in the EVA by these two groups of firms. (2) Even though there is no significant difference in the stated capital management policy of the above two groups of firms, significant difference was found in the ability of those firms in the efficient utilization of capital; specifically, LTV creators are persistently able to utilize their capital more efficiently than value destroying companies. (3) No such difference was found in the ability of both groups of firms in raising capital as a reasonable cost and their financial leverage. (4) On an average basis, intellectual capital management, marketing management and human capital management were not found to be significantly different among the two groups of firms. (5) For supply chain management, conflicting results suggested significant difference in the efficiency in supply chain management of value creator and value destroyer sample firms; however, effectives of supply chain management measured through cash-to-cash cycle was not found to be significantly different. Governance effectiveness was found to be significantly different among LTSV creating and LTSV destroying sample firms for the metrics used to assess the governance effectiveness. Overall, the financial disclosure practices were found to be inadequate in conveying value-relevant information about the above two groups of firms.

Implication of the study

The objective of this study was to investigate the factors responsible for the difference in the stock market performance of a sample of firms. Specifically, the study objective was to discern the factors that are responsible for creation of LTSV. The findings of the study suggest the following. First, disclosure of EVA by firm offers value-relevant information to the capital market. Second, firms with an ability to efficiently utilize their capital and effectively govern their business are more likely to create LTSV than other firms. The study also acknowledges the challenge in assessing the effectiveness of corporate governance through the conventional measures as advocated in the literature and highlights the need for further research to develop a better understanding on how to assess the effectiveness of governance and improve the corporate governance disclosure practices to make it more value relevant. Third, the study also highlights the importance of value-relevant disclosure related to financial capital, intellectual capital, human capital and relational capital to allow market participants to fairly incorporate the off-balance-sheet resources and intangible assets during the valuation process. This is due to the fact that the conventional measures of effective intellectual capital management, supply chain management marketing and brand management and human capital management failed to discern the difference between the LTSV creating and value destroying firms. The above may be more relevant for intangible intensive firms (Ciftci & Zhou, 2014).

The above findings have the following implications for the managers. First, even though it is an established fact that an effective management of intellectual capital, relational capital and human capital creates value for the shareholders, firms’ inability to disclose the quality of the above capital in their financial reports inhibits the shareholder to incorporate them appropriately during the valuation of the firm. It is pertinent for the managers to disclose the value-relevant information to enable shareholders to capture them during the valuation process. Hence, adoption of a reporting framework that ensures the availability of all value-relevant information including off-balance-sheet resources is in the interest of the investors and policymakers alike. Second, for firms with a high and significant level of intangible assets, typically off-balance-sheet intangible assets such as technology-based intangible assets (e.g. Patents), contract-based intangible assets (e.g. non-compete agreements), marketing-based intangible assets (e.g. trademarks) and customer-based intangible assets (e.g. customer contracts), the above disclosure is likely to be more value relevant. Third, this study’s findings suggest significant difference in the effectiveness of the governance of LTSV creating firms from LTSV destroying firms measured through miscellaneous expense as a proportion of turnover. Typically, a relatively low miscellaneous expense as a proportion of turnover indicates an effective governance. A relatively high proportion of miscellaneous expense as a proportion of turnover indicates that a firm does not disclose all material and value-relevant information to the shareholders and lacks integrity in its governance. Hence, there is a felt need of an integration between the formal governance structure with informal organizational integrity to create long-term shareholder’s value.

Literature provides strong support to the proposition that high quality of reporting improves the capital market order (Huang et al., 2023). Hence, firms should communicate all value-relevant information to shareholders through discretionary disclosure, which can be easily comprehended for its relevance for value. Over the years, the complexity of financial reporting has increased. During the financial year 2019, the average number of pages in the annual report of the sample firms included in this study was more for LTSV destroying firms (average 253 pages; SD = 74 pages) than for LTSV creating firms (average = 216 pages; SD = 65 pages), which provides preliminary evidence that all information included in the report of those sample value destroying firms may not be value relevant. Even though this study did not empirically test, there is a felt need to assess the level of complexity of financial reporting and make it more relevant for market participants that fairly represents the economic and business reality (source: Security Exchange Commission, US, n.d).

Conclusion

Overall, based on the comparative analysis of LTSV creating and LTSV destroying firms, this study found effective capital management and governance as a source of value for shareholder value creating firms. Furthermore, the study highlights the need for value-relevant disclosures and supports discretionary disclosure of intangible assets to enable market participants to reasonably comprehend the fair value of the firm.

Table 1

Annual return of S&P BSE 500 firms (year 2001–2019)

Year	Sample size	Average return (in %)	SD (in %)	Minimum return (%)	Maximum return (in %)
2001	236	−15.92	41.57	−100	342.46
2002	240	45.59	87.24	−84.03	756
2003	250	158.65	143.46	−100	877.34
2004	260	49.1	153.99	−100	2091.96
2005	267	80.44	127.43	−54.54	1272.12
2006	284	37.42	151.93	−100	2323.06
2007	308	85.44	161.98	−99.08	1367.26
2008	316	−56.07	43.4	−94.64	589.72
2009	321	158.87	256.29	−49.08	4393.06
2010	336	30.3	54.76	−100	355.49
2011	339	−22.59	32.01	−97.87	239.07
2012	342	50.51	62.36	−57.53	469.5
2013	348	10.64	68.11	−93.23	912.52
2014	350	89.18	99.34	−99.39	542.81
2015	360	20.65	57.86	−82.35	376.44
2016	382	10.81	37.14	−63.44	209.1
2017	396	69.74	122.8	−86.08	1454.9
2018	412	−13.39	30.13	−81.02	140.5
2019	418	−2.79	34.78	−90.69	297.37
Overall	324	41.4	25.3	−100	4393.06

Source(s): Authors’ own creation

Table 2

Top 25 highest performing firms in S&P BSE 500 (panel 1)

Firm	Industry	Close price (as on 1st Jan, 2020)	Listing year	Num_Period	Period with +ve return	Period with −ve return	Average return (%)	SD of return (%)	Average return/SD of return	Min_Return (%)	Max_Return (%)
H1	Other apparels and accessories	23610.85	2007	13	10	3	48.76	53.52	0.91	−24.39	156.81
H2	Packaged food	14777.9	1991	19	15	4	22.49	24.72	0.91	−15.20	78.69
H3	Furniture-furnishing-paints	1793.75	1991	19	15	4	29.65	33.02	0.90	−17.27	102.85
H4	Plastic products	1166.9	2007	13	10	3	65.71	79.18	0.83	−68.43	174.40
H5	Furniture-furnishing-paints	2693.95	2002	18	15	3	54.44	66.64	0.82	−66.72	176.06
H6	Furniture-furnishing-paints	2007.65	1991	19	16	3	25.92	32.48	0.80	−31.04	84.00
H7	Packaged food	3040.75	1991	19	13	6	26.77	34.85	0.77	−22.01	101.24
H8	Personal products	1936.75	1991	19	16	3	16.15	21.44	0.75	−29.90	67.75
H9	Iron steel and intermediate products	1893.9	2006	14	10	4	52.44	69.65	0.75	−75.19	140.56
H10	Specialty chemicals	1405.3	1995	19	14	5	31.80	42.97	0.74	−43.87	116.69
H11	Footwear	1745.6	1995	19	14	5	34.18	46.25	0.74	−62.05	96.15
H12	Other electrical equipment/products	27075.7	1991	19	15	4	43.24	59.14	0.73	−63.45	152.34
H13	Personal products	691.35	2001	19	14	5	29.79	41.07	0.73	−32.91	93.23
H14	Specialty chemicals	4066.55	1992	19	15	4	54.10	74.60	0.73	−56.92	216.94
H15	Holding companies	9379.2	2008	12	9	3	41.67	57.58	0.72	−78.65	133.34
H16	2/3 wheelers	22071.05	1991	19	14	5	62.52	87.15	0.72	−41.11	267.74
H17	Furniture-furnishing-paints	517.15	1991	19	14	5	33.62	47.68	0.71	−45.99	129.86
H18	Agrochemicals	1448.8	1993	19	16	3	53.17	76.08	0.70	−30.34	307.66
H19	Industrial machinery	4656.45	1991	19	14	5	43.22	62.13	0.70	−67.76	170.11
H20	Consumer electronics	828.15	1992	19	15	4	46.06	67.42	0.68	−68.86	175.25
H21	Pharmaceuticals	13141.85	1992	19	13	6	28.80	42.61	0.68	−26.87	126.03
H22	Consumer electronics	653.15	1991	19	15	4	55.19	81.87	0.67	−74.96	202.27
H23	Agrochemicals	419.25	1991	19	11	8	49.46	73.65	0.67	−37.57	202.05
H24	Cement and cement products	20326.9	1992	19	15	4	61.79	93.06	0.66	−65.59	320.53
H25	Fertilizers	528.9	1991	19	13	6	43.44	67.27	0.65	−37.21	175.02

Source(s): Authors’ own creation

Table 3

Top 25 lowest performing firms in S&P BSE 500 (panel 2)

Firm	Industry	Close price (as on 1st Jan, 2020)	Listing year	Num_Period	Period with +ve return	Period with −ve return	Average return (%)	SD of return (%)	Average return/SD of return	Min_Return (%)	Max_Return (%)
L1	Electrical utilities	3.64	2008	12	4	8	−20.91	39.54	−0.53	−87.82	31.48
L2	Exploration and production	152.2	2009	11	5	6	−6.95	28.74	−0.24	−57.53	23.79
L3	Hotels	307.65	1998	13	6	7	−12.66	72.11	−0.18	−100.00	143.39
L4	Heavy electrical equipment	1.91	2005	15	8	7	−8.14	50.24	−0.16	−83.65	48.41
L5	Mining	146	2010	10	3	7	−4.65	36.20	−0.13	−47.82	72.38
L6	Telecom services	6.11	2007	13	7	6	−3.19	47.62	−0.07	−83.66	61.19
L7	IT consulting and software	247.75	1991	19	9	10	−1.37	53.88	−0.03	−56.95	192.61
L8	IT consulting and software	736.9	1995	19	8	11	−0.30	45.60	−0.01	−62.45	135.16
L9	Broadcasting and cable TV	12.83	2007	13	5	8	−0.19	53.88	0.00	−80.47	112.50
L10	Advertising and media	24.2	2007	13	5	8	−0.16	57.60	0.00	−80.42	94.65
L11	Telecom cables	17.45	1992	19	6	13	−0.13	59.92	0.00	−93.08	128.43
L12	Electrical utilities	63.9	2009	11	6	5	−0.02	29.63	0.00	−52.11	38.37
L13	Publishing	133.55	2010	10	5	5	0.69	28.25	0.02	−51.72	40.72
L14	Broadcasting and cable TV	19.75	2010	10	3	7	1.49	59.20	0.03	−37.82	157.83
L15	Utilities: nonelectrical	180.35	2010	10	4	6	4.63	69.52	0.07	−56.70	168.70
L16	Electrical utilities	24	2009	11	4	7	1.90	26.07	0.07	−33.75	44.88
L17	Hotels	227.65	2009	11	4	7	2.68	34.75	0.08	−35.80	82.68
L18	Oil marketing and distribution	129.05	1991	19	7	12	3.16	33.70	0.09	−46.34	86.23
L19	Broadcasting and cable TV	21.25	2007	13	5	8	6.75	67.46	0.10	−69.72	181.08
L20	Other apparels and accessories	24.25	2012	8	4	4	9.66	81.31	0.12	−81.02	156.15
L21	Realty	227.6	2007	13	5	8	6.77	55.24	0.12	−73.56	134.71
L22	Roads and highways	73.5	2008	12	4	8	8.39	68.08	0.12	−54.47	189.25
L23	Roads and highways	103.05	2010	10	4	6	6.92	55.41	0.12	−48.83	130.08
L24	Heavy electrical equipment	66.5	2012	8	3	5	7.31	47.82	0.15	−34.42	115.28
L25	Electrical utilities	69.05	2010	10	4	6	7.85	49.11	0.16	−61.18	85.73

Source(s): Authors’ own creation

Table 4

Contribution of dividend and capital appreciation in overall return of S&P BSE 500 firms

Group	Basis of grouping	No. of firms	Avg-overall return	Return attributed to dividend (in %)	Return attributed to capital appreciation (in %)	Proportion of return through dividend	Proportion of return through capital appreciation
Quartile 1	Positive dividend payout and negative capital appreciation	13	−3.44	2.01	−5.46	−65.40	165.40
	Positive dividend payout and positive capital appreciation	68	14.53	1.87	12.66	15.83	84.17
	No dividend payout and negative capital appreciation	2	−4.08	0.00	−4.08	0.00	100
	No dividend payout and positive capital appreciation	5	10.18	0.00	10.18	0.00	100.00
	Overall	88	11.20	1.89	9.46	2.57	97.43
Quartile 2	Positive dividend payout and positive capital appreciation	86	28.10	2.09	26.01	7.50	92.50
	No dividend payout and positive capital appreciation	2	26.34	0.00	26.34	0.00	100.00
	Overall	88	28.06	2.09	26.02	7.33	92.67
Quartile 3	Positive dividend payout and positive capital appreciation	83	41.32	1.90	39.42	4.73	95.27
	No dividend payout and positive capital appreciation	4	41.19	0.00	41.19	0.00	100.00
	Overall	87	41.31	1.90	39.50	4.52	95.48
Quartile 4	Positive dividend payout and positive capital appreciation	86	72.61	2.16	70.45	2.73	97.27
	No dividend payout and positive capital appreciation	2	72.12	0.00	72.12	0.00	100.00
	Overall	88	72.60	2.16	70.49	2.66	97.34
All sample firms	Positive dividend payout and negative capital appreciation	13	−3.44	2.01	−5.46	−65.40	165.40
	Positive dividend payout and positive capital appreciation	323	40.49	2.01	38.48	7.27	92.73
	No dividend payout and negative capital appreciation	2	−4.08	0.00	−4.08	0.00	100
	No dividend payout and positive capital appreciation	13	31.74	0.00	31.74	0.00	100.00
	Overall	351	38.29	2.01	36.36	4.27	95.73

Source(s): Authors’ own creation

Table 5

Summary result of independent sample t-tests on the sample of long-term value creating and value destroying sample firms (effective capital management)

	Independent sample category	Sample size	5-year average		Levene's test of equality of variances		Test results
			Mean	S.D.	F	Sig	t	df	Sig.(2-tailed)
			EVA (₹ million)
H1	LTSV creating firm	25	1853	8317	10.095	0.003	2.639	25.663	0.014
	LTSV destroying firm	25	−22122	44650
			ROIC (%)
H2	LTSV creating firm	24	24	13	0.001	0.978	2.786	45	0.008
	LTSV destroying firm	23	12	16
			WACC (%)
H3	LTSV creating firm	1.00	25	17	3.094	0.085	−1.036	47	0.306
	LTSV destroying firm	2.00	24	19
			D/E ratio
H4	LTSV creating firm	25	0.19	0.27	8.829	0.005	−2.185	23.379	0.039
	LTSV destroying firm	24	1.50	2.93

Source(s): Authors’ own creation

Table 6

Description of the credit rating awarded to the sample firms in the year 2019

Ratings	Sample firms
	LTSV creating firm	LTSV destroying firm
S&P AAA/Moody Aaa/Fitch AAA	3	2
S&P AA+/Moody Aa1/Fitch AA+	8	0
S&P AA/Moody Aa2/Fitch AA	3	0
S&P AA-/Moody Aa3/Fitch AA-	2	3
S&P A+/Moody A1/Fitch A+	0	4
S&P A/Moody A2/Fitch A	0	1
S&P A-/Moody A3/Fitch A-	0	4
S&P BBB+/Moody Baa1/Fitch BBB+	0	1
S&P BBB/Moody Baa2/Fitch BBB	0	0
S&P BBB-/Moody Baa3/Fitch BBB-	0	2
S&P BB+/Moody Ba1/Fitch BB+	0	1
S&P BB/Moody Ba2/Fitch BB	0	0
S&P BB-/Moody Ba3/Fitch BB-	1	2
Unrated/NA	8	4
Total	25	24

Source(s): Authors’ own creation

Table 7

Excerpts from the capital management policy of LTSV creating sample firms

Firm	Excerpts from stated capital management policy	Stated objectives
		Shareholder value maximization	Safeguard ability to continue as going concern	Manage growth	Maintain stakeholder confidence	Maintain strong credit rating	Availability of fund at competitive cost
H1	1. Maintain strong capital base to ensure sustained growth in business 2. Optimal capital structure that balances growth and maximizes shareholder value	Yes	No	Yes	No	No	No
H2	Sound capital base is maintained to support long term business growth and optimise shareholders value	Yes	No	Yes	No	No	No
H3	The primary objective of the Group when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximize shareholder value	Yes	Yes	No	No	No	No
H4	The Group manages its capital to ensure that the Group will be able to continue as going concern while maximising the return to stakeholders through optimisation of debt and equity balance	Yes	Yes	No	No	No	No
H5	The Group manages its capital to be able to continue as a going concern while maximising the returns to shareholders through capital management (i.e. optimisation of the debt and equity balances)	Yes	Yes	No	No	No	No
H6	The primary objective of the Group’s capital management is to safeguard the Group’s ability to continue as a going concern	No	Yes	No	No	No	No
H7	The Group’s policy is to maintain a stable and strong capital structure with a focus on total equity so as to maintain investors, creditors and market confidence and to sustain future development and growth of its business	No	No	Yes	Yes	No	No
H8	The Group manages its capital so as to safeguard its ability to continue as a going concern and to optimise returns to shareholders	Yes	Yes	No	No	No	No
H9	The Company being in a capital intensive industry, its objective is to maintain a strong credit rating, healthy capital ratios and establish a capital structure that would maximise the return to stakeholders through optimum mix of debt and equity	Yes	No	No	No	Yes	No
H10	The Group manages its capital to ensure that the Group will be able to continue as going concern while maximising the return to stakeholders through the optimum utilisation of the equity balance (Zero Debt Company)	Yes	Yes	No	No	No	No
H11	The primary objective of the Group’s capital management is to maximise the shareholder value	Yes	No	No	No	No	No
H13	The primary objective of the Group’s capital management is to ensure that it maintains an efficient capital structure and healthy capital ratios to support its business and maximize shareholder value	Yes	No	Yes	No	No	No
H14	The primary objective of capital management is to maximize shareholder value	Yes	No	No	No	No	No
H15	The Group manages its capital to ensure that the Group will be able to continue as a going concern, while maximising the return to stakeholders through efficient allocation of capital towards expansion of business, optimisation of working capital requirements and deployment of surplus funds into various investment options	Yes	Yes	No	No	No	No
H16	The primary objective of the Parent's capital management is to maximise the shareholder value	Yes	No	No	No	No	No
H17	The primary objective of the Group’s Capital management is to maximise shareholder’s value. The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business	Yes	No	No	Yes	No	No
H18	The Company has a long-term strategy of pursuing profitable growth. Capital is managed proactively to secure the existence of the Company as a going concern in the long-term and create financial flexibility for profitable growth in order to add value to the Company	No	Yes	No	No	No	No
H19	Primary objective of Company’s capital management is to ensure that it maintains an optimum financing structure and healthy returns in order to support its business and maximize shareholder value	Yes	No	No	No	No	No
H20	The primary objective of the Company’s capital management is to safeguard the company's ability to remain as a going concern and maximize the shareholder value	Yes	Yes	No	No	No	No
H21	The Group’s objective for capital management is to maximize shareholder value, safeguard business continuity and support the growth	Yes	Yes	Yes	No	No	No
H22	1. The company manages its capital to ensure that the company will be able to continue as going concern while maximizing the return to stakeholders through optimization of debt and equity balance. 2. Further its objective is to maintain an adequate capital base so as to maintain creditor and market confidence and to sustain future development	Yes	Yes	No	No	No	No
H23	The primary objective of capital management policy is to ensure availability of funds at competitive cost for its operational and developmental needs and maintain strong credit rating and healthy capital ratios in order to support its business and maximize shareholders value	Yes	No	No	No	Yes	Yes
H24	The Group's capital management objective is to maximise the total shareholder return by optimising cost of capital through flexible capital structure that supports growth	Yes	No	No	No	No	No
H25	The objective is to ensure (a) the Group’s ability to continue as a going concern, (b) to provide an adequate return to shareholders through optimisation of debts and equity balance	Yes	Yes	No	No	No	No

Source(s): Authors’ own creation

Table 8

Excerpts from the capital management policy of top 25 LTSV destroying firms

Firm	Excerpts from stated capital management policy	Stated objectives
		Shareholder value maximization	Safeguard ability to continue as going concern	Growth	Stakeholder confidence	Maintain strong credit rating	Availability of fund at competitive cost
L1	The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capita	Yes	Yes	No	Yes	No	No
L2	The Company manages its capital to ensure that Company will be able to continue as going concern while maximizing the return to stakeholders through the optimization of the capital structure	Yes	Yes	No	No	No	No
L3	The Company’s capital management objectives are to (1) ensure the Company’s ability to continue as a going concern, (2) provide an adequate return to Shareholders	Yes	Yes	No	No	No	No
L4	The primary objective of the Company’s capital management is to maximise shareholder value	Yes	No	No	No	No	No
L6	The primary objective of the Group’s capital management is to maximise the shareholder value	Yes	No	No	No	No	No
L7	The key objective of the Company’s capital management is to ensure that it maintains a stable capital structure with the focus on total equity to uphold investor, creditor, and customer confidence and to ensure future development of its business	No	No	Yes	Yes	No	No
L8	The objective of capital allocation policy is to safeguard company's ability to continue as a going concern and to maintain an optimal capital structure so as to maximize the shareholder value. In order to maintain or achieve an optimal capital structure, the company may adjust the amount of dividend payment, return capital to shareholders, issue new shares or buyback issued shares	Yes	Yes	No	No	No	No
L9	The primary objective of the Group when managing capital is to safeguard its ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value	Yes	Yes	No	No	No	No
L10	The Group manages its capital to ensure that it will continue as going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance	Yes	No	No	No	No	No
L11	The primary objective of the Company’s capital management is to maximize the shareholder value	Yes	No	No	No	No	No
L12	The Group’s objectives when managing capital is to safeguard continuity, maintain a strong credit rating and healthy capital ratios in order to support its business and provide adequate return to shareholders through continuing growth	Yes	Yes	No	No	Yes	No
L13	The primary objective of the Group’s capital management is to maximise the shareholder value	Yes	No	No	No	No	No
L14	The Group’s objective while managing capital is to maintain stable capital structure to support business stability and growth, ensure adherence to the covenants and restrictions imposed by lenders and/or relevant laws and regulations, and maintain an optimal and efficient capital structure so as to reduce the cost of capital that would enable to maximise the return to stakeholders	Yes	No	Yes	Yes	No	Yes
L15	The Group’ s capital management objectives are (a) to safeguard the Group’s ability to continue as a going concern, and continue to provide optimum returns to the shareholders and all other stakeholders by building a strong capital base and (b) to maintain an optimum capital structure to reduce the cost of capital	No	Yes	No	No	No	Yes
L16	The primary objective of the Company’s capital management is to maximize the shareholder value	Yes	No	No	No	No	No
L17	The Group’s key objective in managing its financial structure is to maximize value for shareholders, reduce cost of capital, while at the same time ensuring that the Group has the financial flexibility required to continue its expansion	Yes	No	No	No	No	Yes
L18	The primary objective of the Company capital management is to maximise the shareholder value	Yes	No	No	No	No	No
L20	The Group’ s capital management objectives are: (a) to ensure the Group’s ability to continue as a going concern, (b) to provide an adequate return to shareholders	Yes	Yes	No	No	No	No
L21	The group’ s objective when managing capital are to (1) safeguard their ability to continue as a going concern, so that they can continue to provide returns to shareholders and benefits for other stakeholders, and (2) maintain an optimal capital structure to reduce the cost of capital	Yes	Yes	No	No	No	Yes
L22	The primary objective of the Company’s capital management is to maximise the shareholder value	Yes	No	No	No	No	No
L23	The primary objective of the Company’s capital management is to maximise the shareholder value	Yes	No	No	No	No	No
L24	The primary objective of the Company’s capital management is to ensure that it maintains an efficient capital structure and maximize shareholder value	Yes	No	No	No	No	Yes
L25	The Group being in a capital intensive industry, its objective is to maintain a strong credit rating, healthy capital ratios and establish a capital structure that would maximise the return to stakeholders through optimum mix of debt and equity	Yes	No	No	No	Yes	Yes

Source(s): Authors’ own creation

Table 9

Business and financial strategy for growth of top 25 LTSV creating firm (FY 2015 to 2019)

Firm	5-year average growth rate (%)	Growth policy
		Business/Financial strategy	Fix	Grow (organically)	Grow (inorganically)	Sell
H1	18.12	Profitable growth through investing capital	X	√	√	X
H2	12.40	Profitable growth through investing capital	X	√	√	X
H3	48.39	Balance of organic and inorganic growth strategy with business consolidation	√	√	√	√
H4	23.71	Primarily through inorganic growth strategy	X	X	√	X
H5	26.17	Primarily through inorganic growth strategy	X	X	√	X
H6	13.10	Profitable growth through investing capital	√	√	√	X
H7	22.54	Primarily through organic growth strategy	X	√	X	X
H8	35.09	Business consolidation strategy	√	X	X	√
H9	11.76	Profitable growth through investing capital	X	√	√	X
H10	22.30	Primarily through inorganic growth strategy	X	X	√	X
H11	17.56	Primarily through organic growth strategy	X	√	X	X
H12	19.05	Profitable growth through investing capital	X	√	√	X
H13	9.37	Primarily through inorganic growth strategy	X	X	√	X
H14	21.18	Primarily through business consolidation	√	X	X	√
H15	21.75	Primarily through inorganic growth strategy	X	X	√	X
H16	20.32	Primarily through inorganic growth strategy	X	X	√	X
H17	25.88	Primarily through inorganic growth strategy	X	X	√	X
H18	8.3	Primarily through orgnic growth strategy	X	√	X	X
H19	10.72	Profitable growth through investing capital	X	√	√	X
H20	27.94	Primarily through organic growth strategy	X	√	X	X
H21	6.04	Primarily through inorganic growth strategy	X	X	√	X
H22	11.82	Profitable growth through investing capital	X	√	√	X
H23	25.63	Primarily through inorganic growth strategy	X	X	√	X
H24	7.99	Primarily through inorganic growth strategy	X	X	√	X
H25	31.65	Primarily through inorganic growth strategy	X	X	√	X

Source(s): Authors’ own creation

Table 10

Business and financial strategy for growth of LTSV destroying firms (FY 2015–19)

Firm	5-year average growth rate (%)	Growth policy
		Business/financial strategy	Fix	Grow (organically)	Grow (inorganically)	Sell
L1	0.20	Growth strategy followed by liquidation strategy	X	√	√	√
L2	14.27	Growth strategy primarily through collaboration and joint venture	X	√	√	√
L3	47.00	Organic growth through investment in working capital followed by liquidation strategy	X	√	X	√
L4	521.65	Primarily through business consolidation	√	X	X	√
L5	0.80	Growth strategy primarily through collaboration and joint venture	X	√	√	√
L6	43.76	Primarily through business consolidation	√	X	X	√
L7	9.05	Primarily through inorganic growth strategy	X	X	√	X
L8	7.99	Primarily through inorganic growth strategy	X	X	√	X
L9	−131.81	Primarily through inorganic growth strategy	X	X	X	X
L10	−6.53	Growth strategy through collaboration and joint venture followed by liquidation and consolidation	√	√	√	√
L11	16.33	Primarily through inorganic growth strategy	X	X	√	X
L12	6.83	Primarily through inorganic growth strategy	X	X	√	X
L13	12.51	Primarily through business consolidation	√	X	X	√
L14	51.67	Liquidation strategy followed by stake sale	X	X	X	√
L15	6.11	Inorganic growth strategy followed by liquidation strategy	X	X	√	√
L16	7.65	Primarily liquidation strategy	X	X	X	√
L17	31.34	Primarily through inorganic growth strategy	X	X	√	X
L18	29.43	Profitable growth through investing capital	X	√	√	X
L19	3.83	Consolidation strategy followed by stake sale	√	X	X	√
L20	16.13	Primarily through inorganic growth strategy	X	X	√	X
L21	−6.20	Primarily through business consolidation	√	X	X	√
L22	21.03	Primarily through organic growth by creation of SPV	X	X	√	X
L23	5.10	Primarily through organic growth by creation of SPV and business partnership	X	X	√	X
L24	−10.08	Primarily through organic growth strategy	X	X	√	X
L25	12.37	Primarily through business consolidation	√	X	X	√

Source(s): Authors’ own creation

Table 11

Summary result of independent sample t-tests on the sample of value creating and value destroying sample firms

	Independent sample category	Sample size	5-year average		Levene's test of equality of variances		Test results
			Mean	S.D.	F	Sig	t	df	Sig.(2-tailed)
			R&D expenditure as proportion of sales turnover (%)
H5	LTSV creating firm	25	0.96	2.39	4.647	0.036	1.534	25.420	0.137
	LTSV destroying firm	24	0.22	0.40
			Selling and distribution expenditure as proportion of sales turnover (%)
H6	LTSV creating firm	24	4.37	4.38	0.969	0.331	2.280	38	0.028
	LTSV destroying firm	16	1.68	2.09
			Cash-to-cash cycle (days)
H7	LTSV creating firm	24	60	96	1.389	0.245	0.963	44.000	0.341
	LTSV destroying firm	22	15	202
			Marketing expenditure as proportion of sales turnover (%)
H8	LTSV creating firm	24	4.29	3.86	2.380	0.131	0.346	39.000	0.731
	LTSV destroying firm	17	3.68	7.38
			Employee expenditure as proportion of sales turnover (%)
H9	LTSV creating firm	25	8.78	3.80	24.348	0.000	−1.850	25.648	0.076
	LTSV destroying firm	24	14.79	15.49
			Miscellaneous expenditure as proportion of sales turnover (%)
H10	LTSV creating firm	25.000	1.620	1.162	6.792	0.012	2.327	41.921	0.025
	LTSV destroying firm	24.000	0.966	0.773

Source(s): Authors’ own creation

Table 12

Summary of the independent sample t-test results of hypothesis at α = 0.05

S.No.	Hypothesis description	Outcome
Hypothesis related to effective financial capital management as a source of value for firms
H1	Significant difference exists in EVA by LTV creating firms and LTV destroying firms	Accepted
H2	Significant difference exists in ROIC of LTV creating firms and LTV destroying firms	Accepted
H3	Significant difference exists in WACC of LTV creating firms and LTV destroying firms	Rejected
H4	Significant difference exists in financial leverage of LTV creating firms and LTV destroying firms	Accepted
Hypothesis related to effective intellectual capital management as a source of value
H5	Significant difference exists in the R&D intensity of LTV creating firms and LTV destroying firms	Rejected
Hypothesis related to effective supply chain management as a source of value for firms
H6	Significant difference exists in the supply chain efficiency of LTV creating firms and LTV destroying firms	Accepted
H7	Significant difference exists in the cash-to-cash cycle of LTV creating firms and LTV destroying firms	Rejected
Hypothesis related to effective marketing and brand management as a source of value
H8	Significant difference exists in the marketing and promotional expense efficiency of LTV creating firms and LTV destroying firms	Rejected
Hypothesis related to effective human capital management as a source of value
H9	Significant difference exists in the human capital performance of LTV creating firms and LTV destroying firms	Rejected
Hypothesis related to effective governance as a source of value
H10	Significant difference exists in the governance effectiveness measured through miscellaneous expenses of LTV creating firms and LTV destroying firms	Accepted

Source(s): Authors’ own creation