Determinants of Value Creation: An Empirical Examination from UAE Market

Abstract

The study based on a sample of 61 UAE listed companies examines the determinants of value creation. Size in terms of total assets of a firm is inversely related to value creation. Value as measured by market to book value of equity is negatively related to the size measured by total assets. Larger the size in terms market capitalization, higher would be the value created. Higher earnings relative to price signify higher value creation. Firms having higher risk are expected to have higher returns. The study finds statistical support for the fact that increasing leverage increases the risk of equity shareholders. Hence leverage increases leads to increased expected returns to account for increased risk for equity shareholders. The study also suggests that the average market returns is inversely related to earnings to price ratio. Lower average stock returns are predicted for firms with low market value of equity relative to their earnings. Riskier firms tend to have lower earnings relative to their market value of equity. Keywords: Value Creation; Market Value; Book Value; ROI; Capital Expenditures  JEL Classifications: G2; G3