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Is the Balanced Scorecard Appropriate to Measure Intangible Resources?
-- Stefania Veltri
The main aim of this paper is to demonstrate that, by using the Balanced Scorecard (BSC)
model in measuring intangibles, companies are using an ‘old’ model to measure ‘new’
factors.1 This demonstration is given from a theoretical point of view, by comparing the
BSC and the Intellectual Capital (IC) measurement models in relation to four variables: the
notion of firm, the notion of strategy, the relation between strategy and indicators, and
the value creation process that underpins the BSC and IC models. The comparison is
carried out by analyzing the BSC and IC literature. From the theoretical analysis of the
two models, it emerges that only the IC advanced measurement models address the new
assumptions regarding firms, strategy and value creation process. The main managerial
implications of the paper are that efficient management of organizational resource assets
requires an understanding of the role and the interdependencies of such assets in value
creation dynamics, and this happens only using a model (i.e., an IC advanced
measurement model) which highlights the direct as well as the indirect dependences
between tangible resources and intangible resources and activities.
© 2011 IUP. All Rights Reserved.
Segment Reporting Practices in Indian IT Companies
-- Raju L Hyderabad and P B Kalyanshetti
A firm reporting by segments leaves more information in the hands of stakeholders and
helps to improve the quality of decisions undertaken by them. AS-17 in India mandates
listed and other companies to report information by segments. The present paper analyzes
such segmental reporting practices of IT companies in view of their changing customer
profile and geographical existence. The study finds the Indian IT companies to identify
a few segments and business segment is the primary segment. Multiple-listed companies
identify more segments than single stock exchange listed companies and revenue is the
basic criteria used for identifying reportable segments. The sample firms score poorly in
disclosing both mandatory and voluntary information. Profitability, listing status, external
shareholding and proportion of independent directors positively affect the reporting
practices of IT companies in India, while size of the firms affects negatively.
© 2011 IUP. All Rights Reserved.
Ratio Analysis Approach on Quality of Employees
-- Samuel P D Anantadjaya
In the field of finance and accounting, ratio analyses have become the preliminary
concentration prior to progressing to any advanced discussion. The same is true for
numerous studies on quality of employees. It may be relatively safe to say that the true
connections between the two, if any, may have received minimal attention. Based on the
perspective of the knowledge-based theory of the firm, this paper attempts to study the
connection between the quality of employees and ratio analysis. Employees are seen as
an increasingly important factor in handling the future market uncertainties and
minimizing the organizations’ potential downturns. In preliminary literature, qualitative
studies have been undertaken concerning the theory of the firm, including its
development, as well as its implications to supply chain management, consumer behavior
and customer satisfaction. For the purpose of the study, the quality of employees is
measured only on basis of employees’ skills and abilities, and the ratio analyses are also
limited to growth ratios (sales growth, net profit growth, and cost reduction). It is expected
that the higher the quality of employees, the higher the growth ratios of any given firm.
A cluster sampling method is used in this study to note the characteristics of small
enterprises in certain locations. Aside from the qualitative analyses, which are based on
interviews and field observations, a combination of statistical software packages are used
as tools toward performing quantitative analysis. Research is conducted by gathering data
from primary and secondary sources in service industries in Jakarta and Bandung.
As stated, it is expected that such studies would reveal the significance of connections
between quality of employees and ratio analysis. It is expected that such issues are mostly
true for small/micro businesses.
© 2011 IUP. All Rights Reserved.
Accounting Earning, Book Value and Cash Flow in Equity Valuation:
An Empirical Study on CNX NIFTY Companies
-- Santanu K Ganguli
Way back in 1934, Graham and Dodd observed the importance of earning power in
investment theory. According to them, history of actual earning with a reasonable
expectation should be approximated in future. The empirical study of Ball and Brown
(1968) contends that of all the sources of information as regards the working of a firm
during a year, income number reported in the annual income statement captures one-half
or more. In the backdrop of relevance of accounting numbers for equity valuation,
Feltham and Ohlson (1995) and Ohlson (1995) provide an objective valuation model
based on abnormal earning. According to the models, the fundamental of valuation
depends on abnormal earning—an autoregressive process of the first order [AR(1)] that is
related to the abnormal earning of the previous period. Along with abnormal earning there
may be other variables like book value of the equity, operating cash flow, accruals and
other information (all of them being autoregressive, AR(1), processes) can be used severally
and jointly for predicting equity value. In the present paper, an attempt has been made
to test the forecasting ability of equity share value of CNX NIFTY companies of the
National Stock Exchange of India empirically for a period of 10 years (1999-2008) by
pooling cross-sectional data on abnormal earning, book value and operating cash flow in
line with the forecasting and valuation equation models of Feltham and Ohlson (1995)
and Ohlson (1995). The findings suggest that abnormal earning, book value and operating
cash flow component of earning respectively follow an autoregressive process.
Information on abnormal earning and book value aids in predicting equity value.
The findings are consistent with Ohlson’s model.
© 2011 IUP. All Rights Reserved.
Audit Committees and Corporate Governance:
A Study of Select Companies Listed in the Indian Bourses
-- M D Saibaba and Valeed Ahmad Ansari
Audit committees act as an important link in corporate governance mechanisms.
As such, SOX Act, 2002, Blue Ribbon Committee’s report and Narayana Murthy
Committee’s report have placed greater emphasis on their role in order to strengthen the
functioning of these committees. The rationale behind this is that greater independence
of audit committees is necessary for effective functioning and for alleviating weaknesses
in corporate governance which, in turn, reduces the agency costs. Research evidence
reaffirms this aspect. The objective of this paper is to examine the relationship between
the independence of the audit committee, board independence and firm performance of
listed firms segmented1 between BSE 100 and BSE 200 indices, for the years 2007 and
2008. The results are in consonance with other research studies indicating that
performance of firms which have independent audit committees and greater board
independence is higher resulting in premium valuations as measured by Tobin’s Q,
a proxy for firm performance.
© 2011 IUP. All Rights Reserved.
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