Financial goals pursued by companies in India: a study of companies listed in Ahmedabad Stock Exchange

Abstract

managers were forced to re-orient their strategies to cope up the challenges thrown before them. And liberalization has changed the priorities, needs and the expectations of both the investors and financial managers of an organization. A clear understanding of the goal is imperative for enhancing the efficiency and effectiveness of resources. In finance literature, Shareholders Wealth Maximization (SWM) is considered as the ultimate goal of any business organization. The review of literature shows that the Indian managers while making financial decisions do not aim at maximization of the market value of their company shares. Therefore the present study was undertaken with the specific objectives to know the changes that have occurred about the financial goal(s) pursued by Indian Companies in the recent period and to examine whether the risk aspect is considered in the financial goal system. The study also aims at to find out what criterion the companies use in measuring the performance of financial goal system. The empirical investigation involves both quantitative and qualitative approaches. In the quantitative analysis, sample was drawn from companies listed in Ahmedabad Stock Exchange and which has register office in Gujarat. Sample of 100 companies, based on net worth was selected for the study. The study used questionnaire survey and interview method. 24 per cent of companies responded. The broad findings of the study are that about 80 per cent of the respondents said Ensuring Adequate Liquidity is most important goal for the company’s short ten financial plan and Maximization of Profits is a major goal of the long term financial plan. It was also found out that 60 per cent companies give significant emphasis to the risk factor in their financial goal system. The responses show that 30 per cent of the respondent companies also use EVA in measuring the performance of their financial goal system. But the in-depth interview reveals that the respondents are aware of the fact that EVA is a good criteria of performance measurement but they do not seem to have clear understanding of the concept itself and are not therefore using it. The in-depth interview was primarily aimed at to gain an improved understanding of financial planning process and financial goal system.