n Management Dynamics : Journal of the Southern African Institute for Management Scientists - Variables determining the shareholder value of industrial companies listed on the JSE securities exchange
|Article Title||Variables determining the shareholder value of industrial companies listed on the JSE securities exchange|
|© Publisher:||Southern African Institute for Management Scientists (SAIMS)|
|Journal||Management Dynamics : Journal of the Southern African Institute for Management Scientists|
|Author||John H. Hall|
|Publication Date||Jan 2002|
|Pages||29 - 37|
This study aimed to address issues of shareholder value creation. The Economic Value Added (EVA) model of value creation was used in this study, as it is arguably one of the best methods to express and quantify shareholder value creation. As a starting point, EVA was "dissected" into various building blocks or components (value drivers). In the empirical section of this study, multiple regression analyses of a company's EVA and identified variables were undertaken.
The variables that explained or contributed most to EVA were a number of profitability ratios (in the case of the "all company" sample). Balance sheet ratios or variables did not provide significant explanations of a company's EVA in this sample.
For companies that generated positive EVAs, the total regression coefficients not only increased in value, but, more importantly, profitability ratios contributed less than balance sheet ratios. When the regression analyses were performed on the top 20 EVA companies, balance sheet ratios provided the best explanations.
One can conclude that initially profitability (income statement) ratios are the most important factors in the wealth creating process. However, as companies become established wealth creators and keep improving on their performance, profitability ratios become less important. Efficient financing of the balance sheet, efficient fixed asset and working capital management then become top priorities in creating shareholder value.
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