A STUDY OF LITERATURE REVIEW ON FINANCIAL PERFORMANCE OF SELECTED & LISTED CHEMICAL COMPANIES WITH REFERENCE TO EVA AND MVA
DOI:
https://doi.org/10.29121/shodhkosh.v5.i1.2024.4863Keywords:
Eva, Mva, Financial Performance, Chemical Companies, Value CreationAbstract [English]
The assessment of financial performance assumes essential value creation potential for the long-term sustainability of firms with specific references to capital-intensive and environmentally burdened sectors, such as the chemical industry. Traditional financial performance indicators like Return on Assets (ROA), Return on Equity (ROE), Earnings per Share (EPS), or Net Profit Margin (NPM), have been considered long metrics of measuring profitability and efficiency by corporations. Generally, these indicators fail to describe the visible economic value being delivered to shareholders since the cost of capital or the market expectation is excluded. In recent years, value-based performance measures-most notably EVA and MVA- have gained importance owing to their ability to address such limitations concerning a more complete picture of financial health and shareholder wealth creation.
This literature presents a qualitative review on the financial performance of selected listed chemical companies, particularly concentrating on EVA and MVA as the primary evaluation tools. Kinds and numbers of scholarly articles, industry studies, and reports have been included in this paper, to understand the applicability, merits, and demerits of these parameters. This paper also explores how non-financial factors such as intellectual capital, Environmental Social and Governance (ESG) practice, audit quality, etc. represent influencers of the financial performance and value creation phenomena in the chemical industry. The conclusion of this review finds that while EVA and MVA lend themselves to much deeper understanding of wealth generation and market perception, they still have not been widely adopted or consistently applied in the chemicals industry, especially within developing countries like India.
Also, there is the growing literature on intangibles and their importance and sustainability-related practices as driving performance in firms nowadays. Intellectual capital (i.e. human, structural, and relational capital) has also been shown by various studies to have a positive correlation with both EVA and MVA. Again, it is likely going to be profitable in market valuation and earnings from long-term operations for firms with good ESG practices as compared to the market. Quality of Audit, especially in terms of independence, expertise and governance, comes to light as one of the essential factors determining the accuracy and reliability of much financial reporting. While thus also affecting investor trust and financial outcomes.
The study is limited in many respects. This being a literature review, most of it is theoretical with no empirical testing or primary data analysis. The findings are also from previously published research, which might not do justice to the most recent changes in financial practices or market conditions. The scope is also limited to what has been reported in literature concerning listed chemical companies and does not account for the performance of unlisted companies as well as companies in other geographies.
References
Abdul Rashid, Z., Sambasivan, M. and Johari, J. (2003), "The influence of corporate culture and organisational commitment on performance", Journal of Management Development, Vol. 22 No. 8, pp. 708-728. https://doi.org/10.1108/02621710310487873
Adhikari, B., Kavanagh, M., & Hampson, B. (2023). The effect of mergers and acquisitions on the financial performance of commercial banks in Nepal. Banks and Bank Systems, 18(4), 74–84. https://doi.org/10.21511/bbs.18(4).2023.07
Agrawal, A., Agarwal, R., Agrawal, B., Pandey, S., & Kumari, A. (2024). Performance Evaluation and Management of Indian Manufacturing Organizations Through Fuzzy Optimization Techniques. International Journal of Experimental Research and Review, 44, 245–256. https://doi.org/10.52756/ijerr.2024.v44spl.021
Al-Afeef, M. (2017). The impact of economic value added and return on investment on the changes in stock market’s value (Analytical study: ASE: 2006–2015). International Journal of Business and Management, 12(10), 132–144. https://doi.org/10.5539/ijbm.v12n10p132
Al-Dhaimesh, O. H. (2020). Green Accounting Practices and Economic Value Added: An Applied Study on Companies Listed on the Qatar Stock Exchange. International Journal of Energy Economics and Policy, 10(6), 164–168. Retrieved from https://econjournals.com/index.php/ijeep/article/view/10199
Alhawtmeh, O. M., & ALTarawneh, O. (2024). The impact of audit quality on the financial performance of the listed Jordanian chemical company sector. Evolutionary Studies in Imaginative Culture, 9, 1409–1435. https://doi.org/10.70082/esiculture.vi.1622
Ali, M. A., Hussin, N., Haddad, H., Al-Araj, R., & Abed, I. A. (2021). Intellectual Capital and Innovation Performance: Systematic Literature Review. Risks, 9(9), 170. https://doi.org/10.3390/risks9090170
Ali, S., Murtaza, G., Hedvicakova, M., Jiang, J., & Naeem, M. (2022). Intellectual capital and financial performance: A comparative study. Frontiers in Psychology, 13, Article 967820. https://doi.org/10.3389/fpsyg.2022.967820
Alshehadeh, A. R., Elrefae, G., & Injadat, E. (2022). Influence of traditional performance indicators on economic added value: Evidence from insurance companies. Corporate Governance and Organizational Behavior Review, 6(4), 18–27. https://doi.org/10.22495/cgobrv6i4p2
Alshehadeh, A., Al-Magharbeh, L., Eletter, S., Al-khawaja, H., & Hatamleh, H. (2024). Profitability measures and their impact on interpreting changes in market value added (MVA): Evidence from pharmaceutical and chemical companies. Journal of Infrastructure, Policy and Development, 8(8), 5802. doi:http://dx.doi.org/10.24294/jipd.v8i8.5802
Borodin, A., Ziyadin, S., Islyam, G., & Panaedova, G. (2020). Impact of mergers and acquisitions on companies’ financial performance. Economics and Sociology, 13(2), Article 3. https://doi.org/10.14254/2071-8330.2020/13-2/3
de Wet, J.H. (2005), "EVA versus traditional accounting measures of performance as drivers of shareholder value – A comparative analysis", Meditari Accountancy Research, Vol. 13 No. 2, pp. 1-16. https://doi.org/10.1108/10222529200500009
Dobrowolski, Z., Drozdowski, G., Panait, M., & Babczuk, A. (2022). Can the Economic Value Added Be Used as the Universal Financial Metric? Sustainability, 14(5), 2967. https://doi.org/10.3390/su14052967
Does Corporate Governance Moderate the Relationship between Liquidity Ratios and Financial Performance? Evidence from Indian Pharmaceutical Companies. (2019). Academic Journal of Interdisciplinary Studies, 8(3), 144. https://www.richtmann.org/journal/index.php/ajis/article/view/10570
Doorasamy, M. Theoretical Developments In Environmental Management Accounting And The Role And Importance Of MFCA. Foundations of Management, 2015, Sciendo, vol. 7 no. 1, pp. 37-52. https://doi.org/10.1515/fman-2015-0024
Faiteh, A., & Aasri, M. R. (2023). Economic value added: The best indicator for measuring value creation or just an illusion? Investment Management and Financial Innovations, 20(1), 138–150. https://doi.org/10.21511/imfi.20(1).2023.13
Faiteh, A., & Aasri, M. R. (2023). Economic value added: The best indicator for measuring value creation or just an illusion? Investment Management and Financial Innovations, 20(1), 138–150. https://doi.org/10.21511/imfi.20(1).2023.13
Gautam, A., & Madhavi, T. (2024). Assessing financial performance: A ratio analysis of selected pharmaceutical companies in India. Evergreen, 11(3), 1481–1492. https://doi.org/10.5109/7236805
Geng, S., Liu, S., & Liao, X. (2021). Operating Performance of Tourism Listed Companies in China: The Perspective of Economic Value Added. SAGE Open, 11(1). https://doi.org/10.1177/2158244020981064 (Original work published 2021)
Ghadikolaei, A. S., Esbouei, S. K., & Antucheviciene, J. (2014). Applying fuzzy MCDM for financial performance evaluation of Iranian companies. Technological and Economic Development of Economy, 20(2), 274-291. https://doi.org/10.3846/20294913.2014.913274
Gupta, I., & Raman, T. V. (2022). A study on the impact of mergers and acquisitions on the financial performance of food and agricultural companies. Finance: Theory and Practice, 26(2), 38–47. https://doi.org/10.26794/2587-5671-2022-26-2-38-47
Istan, M. (2023). Financial performance analysis using EVA, MVA, FVA and REVA methods for companies in the telecommunications sector listed on the Indonesian Stock Exchange. Finance: Theory and Practice, 27(6), 211–222. https://doi.org/10.26794/2587-5671-2023-27-6-211-222
Jankalová, M., & Kurotová, J. (2020). Sustainability Assessment Using Economic Value Added. Sustainability, 12(1), 318. https://doi.org/10.3390/su12010318
Kumar, S., & Dua, P. (2021). Environmental management practices and financial performance: evidence from large listed Indian enterprises. Journal of Environmental Planning and Management, 65(1), 37–61. https://doi.org/10.1080/09640568.2021.1877641
Lam, W. S., Lam, W. H., Jaaman, S. H., & Liew, K. F. (2021). Performance Evaluation of Construction Companies Using Integrated Entropy–Fuzzy VIKOR Model. Entropy, 23(3), 320. https://doi.org/10.3390/e23030320
Lehenchuk, S., Zakharov, D., Vyhivska, I., Makarovych, V., & Sheveria, Y. (2024). The impact of intellectual capital on company financial performance: Evidence from the Omani industrial sector. Investment Management and Financial Innovations, 21(1), 343–355. https://doi.org/10.21511/imfi.21(1).2024.26
López-Toro, A. A., Sánchez-Teba, E. M., Benítez-Márquez, M. D., & Rodríguez-Fernández, M. (2021). Influence of ESGC Indicators on Financial Performance of Listed Pharmaceutical Companies. International Journal of Environmental Research and Public Health, 18(9), 4556. https://doi.org/10.3390/ijerph18094556
Mamilla, R., & Vasumathi, A. (2019). Is Apollo Tyres Creating or Destroying Shareholders’ Wealth? South Asian Journal of Business and Management Cases, 9(1), 125-137. https://doi.org/10.1177/2277977919881388 (Original work published 2020)
Meiryani, Huang, S. M., Soepriyanto, G., Jessica, Fahlevi, M., Grabowska, S., et al. (2023). The effect of voluntary disclosure on financial performance: Empirical study on manufacturing industry in Indonesia. PLoS ONE, 18(6), e0285720. https://doi.org/10.1371/journal.pone.0285720
Nugroho, H., Suhardjanto, D., Probohudono, A. N., Supriyono, Arifah, S., & Setiorini, K. R. (2024). How has financial performance evolved in research? A literature review. Evolutionary Studies in Imaginative Culture, 9, 1503–1512. https://doi.org/10.70082/esiculture.vi.1546
Oke, O. O., & Ajeigbe, K. B. (2024). Evaluating the Relationship between Accounting Variables, Value-Based Management Variables, and Shareholder Returns: An Empirical Approach. Journal of Risk and Financial Management, 17(8), 371. https://doi.org/10.3390/jrfm17080371
Petravičius, T., & Tamošiūnienė, R. (2008). Corporate performance and the measures of value added. Transport, 23(3), 194-201. https://doi.org/10.3846/1648-4142.2008.23.194-201
Qomariah, N., Nursaid, & Satoto, E. B. (2021). Improving financial performance and profits of pharmaceutical companies during a pandemic: Study on environmental performance, intellectual capital and social responsibility. Quality - Access to Success, 22(184), Article 20. https://doi.org/10.47750/QAS/22.184.20
Riyadh, H. A., Al-Shmam, M. A., Huang, H. H., Gunawan, B., & Alfaiza, S. A. (2020). The Analysis of Green Accounting Cost Impact on Corporations Financial Performance. International Journal of Energy Economics and Policy, 10(6), 421–426. Retrieved from https://econjournals.com/index.php/ijeep/article/view/9238
Simões, J.M., Gomes, C.F. and Yasin, M.M. (2011), "A literature review of maintenance performance measurement: A conceptual framework and directions for future research", Journal of Quality in Maintenance Engineering, Vol. 17 No. 2, pp. 116-137. https://doi.org/10.1108/13552511111134565
Soewarno, N. and Tjahjadi, B. (2020), "Measures that matter: an empirical investigation of intellectual capital and financial performance of banking firms in Indonesia", Journal of Intellectual Capital, Vol. 21 No. 6, pp. 1085-1106. https://doi.org/10.1108/JIC-09-2019-0225
Srinivasa Reddy, K., Nangia, V.K. and Agrawal, R. (2013), "Corporate mergers and financial performance: a new assessment of Indian cases", Nankai Business Review International, Vol. 4 No. 2, pp. 107-129. https://doi.org/10.1108/20408741311323326
The Impact of Liquidity on Firms’ Performance: Empirical Investigation from Indian Pharmaceutical Companies. (2019). Academic Journal of Interdisciplinary Studies, 8(3), 212. https://www.richtmann.org/journal/index.php/ajis/article/view/10576
Weqar, F., Sofi, Z.A. and Haque, S.M.I. (2021), "Nexus between intellectual capital and business performance: evidence from India", Asian Journal of Accounting Research, Vol. 6 No. 2, pp. 180-195. https://doi.org/10.1108/AJAR-07-2020-0064
Wingard, H.C. and Vorster, Q. (2001), "Financial performance of environmentally responsible South African listed companies", Meditari Accountancy Research, Vol. 9 No. 1, pp. 313-332. https://doi.org/10.1108/1022252920010017
Worthington, A. C., & West, T. (2004). Australian Evidence Concerning the Information Content of Economic Value-Added. Australian Journal of Management, 29(2), 201-223. https://doi.org/10.1177/031289620402900204 (Original work published 2004)
Xu, J., & Liu, F. (2021). Nexus between intellectual capital and financial performance: an investigation of Chinese manufacturing industry. Journal of Business Economics and Management, 22(1), 217-235. https://doi.org/10.3846/jbem.2020.13888
Yingzhao, C., & Hizam-Hanafiah, M. (2024). Relationship between environmental, social and governance and corporate financial performance: A systematic literature review. Malaysian Journal of Consumer and Family Economics, 33, Article 22. https://doi.org/10.60016/majcafe.v32.22
Zhang, X.-B., Duc, T. P., Burgos Mutuc, E., & Tsai, F.-S. (2021). Intellectual capital and financial performance: Comparison with financial and pharmaceutical industries in Vietnam. Frontiers in Psychology, 12, Article 595615. https://doi.org/10.3389/fpsyg.2021.595615
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Nilambari Moholkar, Dr. Amey Adinath Choudhari
This work is licensed under a Creative Commons Attribution 4.0 International License.
With the licence CC-BY, authors retain the copyright, allowing anyone to download, reuse, re-print, modify, distribute, and/or copy their contribution. The work must be properly attributed to its author.
It is not necessary to ask for further permission from the author or journal board.
This journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge.
