Linking Shareholder Returns to Financial Performance Indicators: Evidence from BSE Sensex Companies

Abstract

Purpose: This research is purposed to assess the relationship of various financial performance indicators with Total Shareholder Return within the context of listed companies in the BSE Sensex Index. This study intends to analyze conventional accounting-based measures such as Earnings Per Share, Return on Equity, Return on Assets and value-oriented performance metrics such as Economic Value Added, Cash Value Added, and Market Value Added as to their relative and incremental information content in explaining changes in TSR. Design/Methodology/Approach: The study employs regression analysis on the panel data using static and dynamic models to assess the effect of financial performance indicators on TSR. A sample of 30 companies listed on the BSE Sensex Index for the years 2020 to 2024 was considered. The researcher specifies the regression models using single and multiple independent variables, with TSR as the dependent variable. The models assess the power of accounting-based and value-based performance measures in explaining variations in TSR. Findings: The results indicate that traditional performance measures regarding accounting, specifically ROE and ROA, generate higher dividends on TSR. Moreover, other value-based dimensions such as EVA and CVA would also hone the additional explanatory capacity besides accounting-based dimensions. However, MVA would not add significant predictive power to the TSR. The dynamic panel regression results confirmed the robustness of these findings, especially concerning the importance of ROA and CVA in explaining returns to shareholder investments. Originality/Value: This study aims to support current research by testing accounting-based and value-based performance measures related to TSR for companies on the BSE Sensex Index. This research provides fresh insight into the way different types of financial performance metrics explain shareholder returns, imparting useful information for investors, policymakers, and corporate managers in making investment and strategic decisions. Dynamic panel regression analysis adds to the strength of the analysis.