IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 6 NO. 2 2021

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A Profitability-based Framework for enhancing Shareholder Value Creation in Listed Firms: A Zimbabwean Perspective

Judias Peter Sai,

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Abstract

The purpose: This study was aimed at examining the impact of profitability performance measures on shareholder value (SHV) creation, and then recommending a framework for enhancing SHV creation using the profitability variables in developing economies such as Zimbabwe, based on companies listed on the Zimbabwe Stock Exchange Design/methodology/approach: The study was based on all publicl y listed companies on the Zimbabwe Stock Exchange constituting a sample of 59 firms over the period 2016- 2018. It utilized the shareholder value (S HV) as a dependent o r r e s p o n s e variable and six profi t abi l i t y variables were used as independent variables, namely, net profit margin, gross profit margin, gross profit mark-up, return on capital employed (ROCE), return on equity (ROE) and return on assets (ROA). A quantitative methodology using data from the Zimbabwe Stock Exchange and the African Financial Statements website was followed. All the data was subjected to Panel data analysis, ANOVA and regression analysis to examine the impact of the profitability measures on SHV creation. Findings: Using the regression analysis, the study found that the rate of return on capital employed (ROCE) had a statistically significant positive impact on shareholder value (SHV) creation, while all other profitabilit y measures did not have significant effect on SHV creation. Further, the model was found to influence just over 11% of the changes in SHV in listed firms in Zimbabwe. This means other factors account for about 89% of SHV creation in markets such as Zimbabwe. Research Implications/limitations: The conclusion from this study was that profitability still played a role, although small, in influencing creation of SHV. Profitability measures such as ROCE can still be used as input to maximise SHV in emerging markets such as Zimbabwe and other developing countries. Managers and investors may enhance SHV creation if they include profitability measures in their criteria. However,

keywords:

Shareholder value, Shareholder value creation, Profitability, Performance measurement.

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