What Drives the Shareholder Value?
AbstractIn the strategy literature a lot of emphasis is placed on growth as a dominant business strategy. Is growth always desirable? The finance literature, on the other hand, focuses more on economic profitability and value. This study empirically explores the significance of profitability and growth as drivers of shareholder value, measured by the market-to-book value (M/B) ratio. Profitability is defined as economic profitability; that is, the spread between return on equity and the risk-adjusted cost of equity. Using panel data and employing the Generalized Method of Moments (GMM) estimator, our findings show a strong positive relationship between economic profitability and M/B ratio. Growth, on the other hand, is negatively related to M/B ratio. However, the economic profitability-growth interaction variable has a positive coefficient indicating that growth associated with economic profitability influences shareholder value positively. This finding is further supported when we analyse the relationships separately for the positive-spread firms and negative-spread firms. Our results also indicate negative relationship between M/B ratio and firm size and positive relation with business risk, financial risk and capital intensity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Penerbit Universiti Sains Malaysia in its journal Asian Academy of Management Journal of Accounting and Finance.
Volume (Year): 1 (2005)
Issue (Month): 1 ()
shareholder value; economic profitability; EVA; spread; GMM;
Other versions of this item:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tim Opler & Lee Pinkowitz & Rene Stulz & Rohan Williamson, 1997.
"The Determinants and Implications of Corporate Cash Holdings,"
NBER Working Papers
6234, National Bureau of Economic Research, Inc.
- Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, Elsevier, vol. 52(1), pages 3-46, April.
- Carolyn Y. Woo, 1984. "An Empirical Test of Value-Based Planning Models and Implications," Management Science, INFORMS, INFORMS, vol. 30(9), pages 1031-1050, September.
- Gabriel Perez-Quiros & Allan Timmermann, 2000.
"Firm Size and Cyclical Variations in Stock Returns,"
Journal of Finance, American Finance Association,
American Finance Association, vol. 55(3), pages 1229-1262, 06.
- Allan Timmermann & Gabriel Perez-Quiros, 1999. "Firm Size and Cyclical Variations in Stock Returns," FMG Discussion Papers, Financial Markets Group dp335, Financial Markets Group.
- J. A. Hausman, 1976.
"Specification Tests in Econometrics,"
185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Farouq Rafiq Altahtamouni & Zaher Abdelfattah Alslehat, 2014. "The Impact of Accounting Indicators and Growth on the Market Value," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 9-18, April.
- repec:hur:ijaraf:v:4:y:2014:i:2:p:13-22 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journal Division).
If references are entirely missing, you can add them using this form.