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Value Drivers Of Gcc Firms-An Empirical Study

Author

Listed:
  • B Rajesh Kumar
  • K S Sujit

    (Institute of Management Technology, Dubai)

Abstract

Identification of value drivers for value creation is an important element of strategic management. This study explores the impact of financial and operational drivers on value creation of firms in the GCC market. The study analyses the impact of variables involving investment, financing and dividend decisions on value creation of GCC firms. The study aims to understand the determinants of market value creation in GCC firms. The study was based on 646 GCC firms. The Partial Least Squares Structural Equations Modelling (PLS-SEM) was used to examine the determinants of value creation. The study applied the Wrap PLS software for analysis. The path of value creation and its relationships with different important latent variables in GCC was first examined using linear model. The nonlinear model is also tested and the results were similar to the linear model in terms of significance and signs of path coefficients. The internal consistency reliability of reflective measures is analyzed through composite reliability and Cronbach's alpha. The study documents that size of the firm is an important determinant for value creation in GCC firms. Management efficiency and profitability are other determinants of value creation among GCC firms. There exists negative relationship between liquidity and value creation. Riskier firms tend to create lower market value for GCC firms. Firms with higher agency costs tends to be more profitable. Higher management efficiency leads to more profitability for firms. Profitable firms tend to become more dividend intensive. Higher leverage inversely affects profitability. The study finds negative relationship between risk and profitability. High capital investments signals less profitability for firms. Large firms are found to be more profitable. Riskier firms tend to be less profitable. The study suggest that fundamental performance is the ultimate driver of value creation. Firms which focus on operating performance tend to be value creators. Firms with high risk characteristics create less value for firms. Firms with higher profits tend to pay more dividends. Financing decision also affects value creation for firms. Management efficiency is an important driver for value creation.

Suggested Citation

  • B Rajesh Kumar & K S Sujit, 2018. "Value Drivers Of Gcc Firms-An Empirical Study," Journal of Developing Areas, Tennessee State University, College of Business, vol. 52(3), pages 199-210, July-Sept.
    • Handle: RePEc:jda:journl:vol.52:year:2018:issue3:pp:199-210
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    Cited by:

    1. Abdullah Al Daas & Moid U. Ahmad & Suleiman Jamal Mohammad, 2020. "The Dynamics Between Dividends, Financing and Investments: Evidence From Jordanian Companies," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 231-240, July.

    More about this item

    Keywords

    Value Creation; Profitability; PLS SEM;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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