In Search of Prediction Model for Determination of Shareholders’ Wealth

Shareholders' wealth has become an important concept among investors in the globalized economy. Investors who have a variety of options will be interested in evaluating the performance of corporate sector in terms of shareholders' wealth before making any investments. Shareholders' wealth is measured in terms of Economic Value-Added (EVA). The purpose of the present research paper is to develop shareholders' wealth prediction model for Indian manufacturing industry so that prospective shareholders can estimate the wealth of a company before making investments. The sample of fifty four companies out of nine sectors of Indian manufacturing Industry has been taken for the present research work. The prediction model for determination of shareholders' wealth has been developed i.e. Y = -1297.168 0.051 X 2 15.744 X 31 71.318 X 10 through multiple regression statistical technique. In order to examine whether the developed multiple regression model is reliable or not, Z-test for two samples means is administered. The estimated amount of EVA is calculated by applying the own developed multiple regression model. We developed a hypothesis that there is no significant difference between mean values of actual amount of EVA and estimated amount of EVA. Our null hypothesis is accepted because the calculated value of Z (0.011847224) is less than the critical value (1.959963985). It clearly indicates that there is no significant difference between mean value of actual EVA and estimated EVA. The visible difference is only due to sampling fluctuations not due to major reason. Hence, this model can be used to predict the amount of EVA. Where:Y = Economic Value AddedX 2 = Market Value AddedX 31 = Finished Goods Turnover RatioX 10 = Weighted Average Cost of Capital