Financial Goals and Company Performance: A Study of Companies in India

Indra Pandey and Ramesh Bhat ()

IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: The objectives of the study were (a) to find out the financial goals structure and the relative significance of the financial goals pursued by companies in India and (b) to examine if a company’s financial performance was related to the goal structure it follows. A questionnaire was sent to each company listed in the Investors’ Guide of the Economic Times. Sixty one questionnaires were received back, of which fifty seven were found useable for analysis. The information about the actual financial performance for 42 of these companies, for which complete data were available, was obtained form the Bombay Stock Exchange Official Directory. An analysis of the relationship between the goals pursued by them and their actual performance was conducted using dummy variable regression analysis method. The results of the study are: (1) Companies in India follow multiple financial goals. (2) Out of the total respondent companies, only 2.4 per cent inter-alia consider maximization of market value per share int he financial decision-making. (3) From the overall rank ordering of the financial goals the following four goals could be isolated as more prevalent in practice: (a) maximization of operating profit before interest and taxes; (b) maximizing the rate of return on investment’ (c) maximizing the growth rate in sales; and (d) ensuring that funds are available. (4) An international comparison of financial goals reveals that two goals viz. maximizing the growth in sales and ensuring that funds are available are significantly related with the actual financial performance of the companies. On the other hand, a week association was found between the goals of ‘maximizing profit before interest and taxes’ and ‘maximizing the return on investment’ and the financial performance. However, the relationship between financial goals and the company performance is significant when the four goals are considered together.

Date: 1989-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:wp00853

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