A study on the relationship between share holders value and performance measurement (With special reference to Bharat Heavy Electricals Ltd.)

The concept of shareholder value has been one of the driving forces in the change of current management practice. There are various factors that drive the market value of a firm. Decisions located within the boundaries of the firm play a greater role in driving the financial performance of the firm and its valuation in the equity market, under the new policy regime. Current financial performance of a firm directly influences its market valuation. MVA is the excess of market capitalization over and above the shareholders equity. The purpose of this study was to investigate the strength of the relationship between EVA and other traditional accounting measures such as Earnings per Share (EPS), Dividend per Share (DPS) and Return on Capital Employed (ROCE) relative to market value added (MVA). The results are of interest to financial managers and analysts because it provides a way to identify the driver(s) of value with the strongest impact on MVA may be extremely helpful in developing financial strategies that can optimize value creation for shareholders. The correlation and regression analysis has been done to find out the relationship between the MVA and EVA and traditional measures. It is interesting to note that Market Value Added per share (MVAPS) is explained significantly by the traditional measures than the Economic Value Added per share (EVAPS) share. The traditional measures alone are capable of explaining the 91 per cent of variance in MVAPS significantly at 1 per cent level while only 32.2 per cent by Economic Value Added per share measure. The results strongly argue in favour of the traditional measures in explaining the market value of the company. The fundamentals of the company strongly play a vital role in deciding the market value of the company. Hence an investor should keep this in mind while selecting his investment with a specified company.