Financial Performance
Author: Sejal Divekar
CSR and Financial Performance.
Licandro et al (2024) state that this study offers significant contributions to both theoretical development and practical implications in the field of Corporate Social Responsibility (CSR) and financial performance. Firstly, it reaffirms the positive relationship between CSR and financial performance, employing novel measurement methods. Secondly, it highlights the mediating role of stakeholder satisfaction, emphasizing the importance of effective company management. Thirdly, it underscores the relevance of Stakeholders Theory in conceptualizing CSR. From a managerial perspective, the study emphasizes the profitability of integrating CSR practices while stressing the need for simultaneous stakeholder satisfaction to actualize these benefits. Moreover, it dispels the notion that CSR is exclusive to large corporations, showing its applicability across all company types. Methodologically, the study advances the field by ensuring consistency between conceptual frameworks and measurement methods, utilizing a comprehensive set of CSR indicators, weighting them based on stakeholder importance, and incorporating company-supplied data. Additionally, it broadens the scope by including medium-sized and private companies, and by adopting a longitudinal perspective when assessing financial performance. Overall, these methodological refinements and empirical findings enhance our understanding of the complex interplay between CSR, stakeholder satisfaction, and financial performance, providing valuable insights for researchers, practitioners, and policymakers alike.
Effect of GST on Financial Performance of selected manufacturing companies in India.
Vyas (2023) concludes that the study investigates the impact of the Goods and Services Tax (GST) implementation in India on the financial performance of selected manufacturing companies across various industries. It identifies significant differences in financial performance among these companies post-GST implementation. Notably, Shree Cements, Page Industries, Guj Mineral, Hero MotoCorp, and Tata Steel exhibit commendable performance within their respective industries during the study period. The analysis employs the DuPont chart model to illustrate the influence of taxes and interest on Return on Equity (ROE). This study provides valuable insights for investors, researchers, and students interested in understanding the effects of GST on manufacturing companies in India.
Effect of Financial Performance on Share Price.
Rao and Sinha (2023) emphasize that the decline in India Bulls Housing Finance’s stock price cannot be attributed solely to unsubstantiated claims, as a closer examination of the company’s financial statements reveals concerning trends. Since 2019, there has been a consistent decrease in revenues and net profit, indicating a deteriorating financial performance. Although there has been a slight improvement in the Debt-to-Equity Ratio (DER), other indicators paint a less optimistic picture. The rejection of the proposed merger with Lakshmi Vilas Bank by the RBI further dampens prospects for India Bulls expansion into the banking industry. Moreover, recent massive sell-offs by the company’s promoters and the sale of its mutual funds business indicate a lack of confidence in the company’s future. Additionally, the layoffs of up to 2000 workers raise further concerns about the company’s stability. Overall, the combination of declining financial performance, regulatory setbacks, and strategic shifts suggests a challenging road ahead for India Bulls Housing Finance.
Impact of employee turnover on financial performance.
Aslam et al (2022) says that the study utilizes a recent and globally representative unbalanced panel dataset, investigates the impact of employee turnover on the financial sustainability of Microfinance Institutions (MFIs). The findings reveal a significantly negative effect of employee turnover on MFI financial sustainability, with nuances depending on factors such as legal status, location, profit orientation, and measurement techniques. Specifically, higher turnover is associated with detrimental effects on financial performance, particularly in regions like Africa, EAP, EUCA, and LAC, potentially deterring international investors. Thus, the study underscores the importance of implementing employee retention policies and fostering a supportive work culture within MFIs. However, they acknowledge challenges in completely curbing turnover due to personal reasons and cost implications. Future research should address limitations by examining decomposed turnover data, exploring effects on other MFI operations, and employing more comprehensive measures of competition. Additionally, investigating more complex relationships between turnover and performance dimensions is warranted for a deeper understanding.
Operational Efficiency of Power Companies.
Pinninti, S and Pinninti, V. R. R. (2022) writes that the analysis of operational efficiency ratios in the context of the power sector in India reveals significant insights into the financial performance of companies within this industry. The study focused on comparing three reputed power companies, utilizing key ratios such as Inventory Turnover Ratio, Fixed Assets Turnover Ratio, Investment Turnover Ratio, and Debtors Turnover Ratio. The findings underscore the crucial role of operational efficiency in driving financial success. Companies that exhibit superior operational management efficiency demonstrate higher profitability. In this study, the company with the best operational efficiency experienced a remarkable profit growth of 23% over the past five years. In contrast, less efficient companies saw comparatively lower profit growth rates of 9%. Moreover, the assessment of liquidity through the Debtors Turnover Ratio elucidates the importance of effective liquidity management, particularly during unforeseen crises like the COVID-19 lockdown or other adverse events. Companies with better liquidity management are better equipped to weather short-term crises, mitigating potential negative impacts on their business operations. The significant variances observed among the selected power sector companies underscore the diverse impacts of operational efficiency on financial performance within the industry. These findings highlight the critical importance of optimizing operational processes and resource utilization to enhance profitability and resilience against external challenges. Furthermore, the methodology and insights derived from this study can be extrapolated to analyze the financial performance of companies across various economic sectors. By assessing operational efficiency ratios, businesses can gain valuable insights into their performance drivers and identify areas for improvement to achieve sustained growth and competitiveness.
Impact of FDI on Life Insurance Companies.
Kajiwala and Rawat (2021) concludes that, an era characterized by heightened financial integration among nations, Foreign Direct Investment (FDI) has emerged as a critical factor, particularly within the life insurance sector in India. This study undertakes a comparative analysis between FDI-based and non-FDI-based life insurance companies to evaluate the impact of FDI on financial performance. Leveraging the CARAMEL model and employing statistical tests such as Mann-Whitney and ANOVA, the study examines various performance indicators including capital adequacy, asset quality, management soundness, earnings, profitability, and liquidity. The findings indicate that FDI-based companies excel in terms of capital adequacy, management soundness, and earnings, while non-FDI-based companies demonstrate strength in asset quality, reinsurance, actuarial issues, and liquidity. Significance tests highlight notable disparities between FDI-based and non-FDI-based firms across multiple dimensions of financial performance. Although ANOVA yields conflicting results regarding capital adequacy due to data distribution irregularities, Mann-Whitney results substantiate the positive impact of FDI on various performance metrics. Overall, the study concludes that FDI exerts a significant and positive influence on the financial performance of the life insurance sector in India, underscoring its importance in driving sectoral growth and stability.
Financial Leverage and Performance in FinTech Firms.
Srivastava (2022) states that this study examines the relationship between financial leverage and performance in FinTech firms, considering their unique characteristics compared to traditional financial institutions and high-tech companies. The findings suggest that lower levels of debt are associated with higher performance, with this relationship remaining robust across various measures of debt, control variables, and firm age. Implications for managers, lenders, investors, and policymakers are identified. Managers should carefully evaluate the impact of leverage on performance when adjusting debt levels, while lenders and investors should consider the capital structure of FinTech firms before making lending or investment decisions. Policy discussions regarding potential capital requirements for FinTech firms are also informed by these findings, suggesting that such requirements may not necessarily burden firms as they do in the banking industry. Limitations include the focus on listed and large FinTech firms due to data availability constraints, as well as limited international evidence. Future research should aim to address these limitations as more data on FinTech firms become available. Nonetheless, this study provides valuable empirical insights into the relationship between financial leverage and performance in the FinTech industry.
Relation of World’s Top Companies to Business Environment.
Khazaei and Azizi (2020) examine that fostering a conducive business environment is essential for economic growth and attracting investment. This involves streamlining regulations, reducing bureaucratic hurdles, and facilitating access to credit and international trade. Studies show that indices such as starting a business, getting credit, and trading across borders have a significant positive impact on the profitability of top companies globally. However, enforcing contracts, although important for non-financial performance, does not directly affect profitability according to the findings. Longitudinal studies reveal that countries with favourable business environments tend to host top global companies over time. While recent improvements in business ease, such as those seen in Singapore and Georgia, are commendable, they may not immediately translate into the emergence of top global companies. Therefore, achieving a favourable business climate is a long-term endeavour crucial for sustainable economic development and attracting top-tier businesses.
Ownership Structure of Indian Corporate Sector.
Verma et al (2021) states that the study examines the relationship between ownership structure and performance within the Indian corporate sector from 2013-14 to 2019-20 reveals several significant findings. Firstly, there exists a positive correlation between foreign ownership and financial performance metrics such as Return on Assets (ROA) and Return on Capital Employed (ROCE), indicating that increased foreign ownership tends to enhance the performance of Indian listed firms. Additionally, government ownership also demonstrates a positive influence on performance, as measured by ROA and ROCE. Conversely, directors’ ownership appears to have a detrimental effect on financial performance. The impact of institutional and corporate ownership on performance remains inconclusive based on the study’s findings. Moreover, liquidity ratio exhibits a positive association while leverage ratio and firm size display a negative relationship with performance metrics (ROA and ROCE). These findings collectively suggest that ownership structure, including foreign and government ownership, as well as factors like liquidity, leverage, and firm size, play crucial roles in shaping the financial performance of Indian corporations over the specified period.
Impact of Gender Quotas on Company Performance
Yu and Madison (2021) examine the implementation of gender quotas on corporate boards and their subsequent impact on company financial performance reveals a nuanced and evolving landscape. Despite a limited empirical base due to the recent adoption of quotas, the majority of studies suggest a negative association between gender quotas and company performance, with varying magnitudes across different performance metrics. These findings challenge traditional expectations derived from resource dependence and agency theories, aligning instead with social psychology theories predicting decreased cooperation and efficiency within demographically heterogeneous boards. However, significant complexities emerge, including potential dynamic effects over time, national and sociocultural influences, and moderating variables such as the proportion of female directors. Further research is warranted to explore these dynamics comprehensively, considering long-term effects, mitigating factors, and a broader range of performance measures beyond traditional financial metrics. Overall, while inconclusive, this systematic review casts doubt on the presumption that mandatory gender quotas for corporate boards inevitably lead to improved company performance.
Conclusion:
During the study, I found that the analyses presented span diverse sectors and topics, providing valuable insights into critical aspects of business performance and regulatory impact across various industries. From examining the influence of Foreign Direct Investment (FDI) on the financial performance of the life insurance sector in India to investigating the effects of gender quotas on corporate board performance, each study sheds light on complex relationships within the business landscape. While some findings point to positive associations, such as the bolstering of financial performance by FDI and the affirmation of the link between Corporate Social Responsibility (CSR) and financial success, others highlight challenges and complexities, such as the nuanced effects of gender quotas on company performance. Together, these studies underscore the multifaceted nature of business dynamics and the importance of considering diverse factors, from regulatory frameworks to operational efficiency, in driving sustainable growth and competitiveness. As businesses navigate evolving landscapes and policymakers seek to foster conducive environments, the insights gleaned from these analyses offer valuable guidance for informed decision-making and strategic planning.
References:
Hanumantha Rao, P., & Sinha, A. K. (2023) Effect of Financial Performance on Share Price: A Comparative Analysis of India Bulls Housing Finance Ltd. IUP Journal of Accounting Research & Audit Practices, [s. l.], v. 22, n. 3, p. 65–77. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=88f847c9-d028-3254-9175-8e9bda138641.
Kajiwala, R., & Rawat, B. (2021). The Impact of FDI on the Financial Performance of Life Insurance Companies: A Comparative Analysis. IUP Journal of Applied Finance, [s. l.], v. 27, n. 4, p. 27–53, 2021. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=59fdc30e-07e4-313b-8dd8-6767c77d215a.
Khazaei, M., & Azizi, M. (2020). How financial performance of world’s top companies are related to business environment? Applied Economics, [s. l.], v. 52, n. 60, p. 6525–6539, 2020. DOI 10.1080/00036846.2020.1803487. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=2899efb3-7129-33a2-ab03-c39092dd8abe.
Licandro, O., Burguete, J. L. V., Ortigueira-Sánchez, L. C., & Correa, P. (2024), Corporate Social Responsibility and Financial Performance: A Relationship Mediated by Stakeholder Satisfaction. Administrative Sciences (2076-3387), [s. l.], v. 14, n. 1, p. 15. DOI 10.3390/admsci14010015. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=03705ddc-d64c-3656-8e71-41923d07aac8.
Mia, M. A., Ahmad, N. H., & Halim, H. A. (2022). The impact of employee turnover on the financial performance of microfinance institutions: A global evidence. Business & Society Review (00453609), [s. l.], v. 127, n. 4, p. 863–889, 2022. DOI 10.1111/basr.12291. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=f3b84772-6fdd-3740-8bac-c6fc868a3f40.
Pinninti, S., & Pinninti, V. R. R. (2022). Impact of Operational Efficiency on Financial Performance: An Analysis of Select Power Companies. IUP Journal of Operations Management, [s. l.], v. 21, n. 4, p. 38–50, 2022. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=0e70a3a0-9b4b-394d-9199-de517d08f1d2.
Srivastava, A. (2022). Leverage, Scale of Operations and Financial Performance of Primary (Urban) Cooperative Banks in India. IUP Journal of Bank Management, [s. l.], v. 21, n. 2, p. 53–69, 2022. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=62ebd602-e170-39f6-a0a9-139fdff0ecd3.
Verma, R., Sharma, D., & Priyanka. (2021). The Impact of Ownership Structure on the Financial Performance of Indian Corporate Sector. IUP Journal of Corporate Governance, [s. l.], v. 20, n. 2, p. 7–20, 2021. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=e50cd35b-94c6-361f-9417-4eb5283f060f.
Vyas, K. A. (2023), Effect of GST on the Financial Performance of Selected Manufacturing Companies in India: A DuPont Model Analysis. IUP Journal of Accounting Research & Audit Practices, [s. l.], v. 22, n. 4, p. 5–13. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=5d2343e9-7187-3b54-b319-2104613301d7.
Yu, J. J., & Madison, G. (2021). Gender quotas and company financial performance: A systematic review. Economic Affairs, [s. l.], v. 41, n. 3, p. 377–390, 2021. DOI 10.1111/ecaf.12487. Disponível em: https://research.ebsco.com/linkprocessor/plink?id=f3fccd29-2e3b-32a8-9f80-f9449e618a72