Winning the value creation race: Foreign vs Indian companies

As the corporates’ most vital objective at this moment is to maximise shareholder value, establishing a relationship between the financial variables and 1the corporate objective is imperative. This article tests whether value based frameworks are applicable in Indian condition, an attempt has been made in the current study to apply the valuation methods (as adapted from S. David and Stephen F.O'Byrne) to the Indian Corporate Sector. With this objective in mind, the present study intends to examine the relationship between shareholder's value and financial variables. A sample of 18 top companies has been taken from Auto-ancillary industries during the period spanning 1997–2011.

With the liberalization, there was influx of foreign companies which brought in fresh foreign capital into the Indian markets. While the typical Indian corporates hail from family business group, with the decade of the 1990s, which forms our period of study, has witnessed radical changes in public policy in India that can be expected to have an effect on the macroeconomic environment within which firms always operate. These changes were manifested in dismantling of the industrial licensing system, a dilution of anti-monopoly laws, withdrawal of directed credit programs, and opening of several economic activities to private sector participation. The sample companies were classified on the basis of their ownership. Foreign ownership companies comprise both business Groups and private companies whose majority stake is held by foreign stakeholders. Indian ownership comprise of again business Groups and private companies which are owned and controlled by Indian counterparts.