Company Risk Measurement through Two-Stage Principal Component Analysis: A Study of Select FMCG Companies in India in the Post-Reform Period

Authors

  • Krishna Singh The Institute of Cost Accountants of India
  • Rahul Kumar Ghosh The Institute of Cost Accountants of India
  • Debasish Sur The Institute of Cost Accountants of India

DOI:

https://doi.org/10.33516/rb.v47i3-4.27-48p

Keywords:

Company Risk, Business Risk, FMCG Companies, Profitability, Index.

Abstract

The present study was carried out to analyze the status of company risk of fifteen selected FMCG companies in India during the period 2003-04 to 2017-18 on the basis of company risk index (CRI).

In the present study Two-stage Principal Component Analysis ((TSPCA) was used for the purpose of designing the overall CRI of each of the selected companies. An attempt was also made to identify the impact of the CRI of selected companies on their profitability during the same period adopting regression analysis technique.

A notable outcome of the study is that half of the selected companies were placed in the category of higher level of company risk whereas one third of the companies under study found place in the category of lower level of company risk. The study also revealed that high company risk was well compensated by high overall return while high company risk was not at all compensated by high owners’ return in the selected companies during the period under study.

No study has so far been made in India in the recent times to analyze company risk applying a CRI which has been formulated adopting Two-Stage Principal Component Analysis (TSPCA) technique. In order to bridge the gap, an attempt has been made in the present paper to design a suitable CRI applying TSPCA for measuring the company risk.

Downloads

Download data is not yet available.

Downloads

Published

2022-01-17

How to Cite

Singh, K., Ghosh, R. K., & Sur, D. (2022). Company Risk Measurement through Two-Stage Principal Component Analysis: A Study of Select FMCG Companies in India in the Post-Reform Period. Research Bulletin, 47(3-4), 27–48. https://doi.org/10.33516/rb.v47i3-4.27-48p

Issue

Volume 47, Issue 3-4, October 2021-January 2022

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

References

Abbas, A., Bashir, Z., Manzoor, S., & Akram, M. N. (2013). Determinants of firm’s financial performance: an empirical study on textile sector of Pakistan. Business and Economic Research, 3(2), 76.

Bettis, R.A. and Mahajan, V. (1985). Risk/Return performance of diversified firms. Management Science, 31(7), 785-799.

Bhayani, S. J. (2010). Determinant of profitability in Indian cement industry: an economic analysis. South Asian Journal of Management, 17(4), 6-20.

Cámara, N. & Tuesta, D. (2014). Measuring financial inclusion: A multidimensional index, BBVA Research Working Paper, No. 14/26.

Chakraborty, I. (2015). The effect of business risk on capital structure of Indian corporate firms: business groups vs, stand-alone firms, Global Economic Review, 44(2), 237-268.

Cootner, P. H. & Holland, D. M. (1970). Rate of return and business risk, The Bell Journal of Economics and Management Science, 1(2), 211-226.

Datta, S. K & Singh, K. (2019). Variation and determinants of financial inclusion and association with human development: a cross country analysis. IIMB Management Review, 31 (4), 336-349.

Dhanabhakyam, M. & Balasubramaniun, P. (2012). Business risk and financial risk – Indian corporate sector, Indian Journal of Applied Research, 1 (7), 3133.

Ghosh, A. (2013). An empirical investigation into enterprise risk management in India. WPS No. 722, Indian Institute of Management Calcutta, Available at: https://www.iimcal.ac.in/sites/all/files/pdfs/wps_722_0.pdf

Ghosh, T.P. (1997). Managing corporate risk: An accounting approach. Research Bulletin, 14, 9-14.

Gupta, A. & Sur, D. (2015). Business risk in selected industries in India. ARASH, 5 (1 & 2), 53-60.

Kakani, R. K., Saha, B., & Reddy, V. N. (2001). Determinants of financial performance of Indian corporate sector in the post-liberalization era: An exploratory study. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=904983.

Mallik, A. K. & Sur, D. (2009). Business and financial risks in Indian corporate sector: an empirical analysis in the post-liberalization era. The Icfai Journal of Applied Finance, 15(45), 5368.

Mallik, A. K., Sur, D. & Ganguly, P. (2016). Business risk in Indian corporate sector: a study of select companies in the post-liberalization era. Research Bulletin, 42 (2),33-49.

Misra, S. D., & Misra, D. (2007). Analysis of risk and returns: a study of Indian industrial sector. International Journal of Indian Culture and Business Management, 1 (1/2), 28-47.

Mohammed, D. (2012). Impact of business risk on corporate capital structure of publicly – listed Nigerian companies. IOSR Journal of Business and Management, 5(2), 1-15.

Oviatt, B. M. & Bauerschmidt, A. D. (1991). Business Risk and return: a test of simultaneous relationships. Management Science, 37 (11), 14051423.

Pouraghajan, A. et al. (2012). The relationship between capital structure and firm performance evaluation measures: evidence from the Tehran stock exchange. International Journal of Business and Commerce, 1(9), 166181.

Pratheepan, T. (2014). A panel data analysis of profitability determinants: empirical results from Sri Lankan manufacturing companies. International Journal of Economics, Commerce and Management, 2 (12), 1-9.

Bharat, R., Kotwal, A. & Wadhwa, W. (2011). Economic liberalization and Indian economic growth: what’s the evidence? Journal of Economic Literature, 49(4), 1152-99

Shlens, J. (2009). A tutorial on principal component analysis. Unpublished manuscript

Singh, J. V. (1986). Performance, slack and risk taking in organizational decision making, The Academy of Management Journal, 29 (3), 562-585.

Singh, K., & Sur, D. (2018). Analysing company-specific components of business risk in selected manufacturing firms in Indian corporate sector, International Journal of Risk Assessment and Management, 21(4), 359-373.

Sur, D. (2007). Business and financial risks of NTPC Ltd. in the pre- and postliberalisation periods: a comparative study. The ICFAI Journal of Applied Finance, 13 (10), 66-78.

Sur, D. & Mitra, S. (2011). Business risk analysis through Ginni’s coefficient: a study of select IT companies in India. International Journal of Research in Computer Application and Management, 1, 49-55.

Tandon, K. & Purohit, H. (2015). Intellectual capital, financial performance and market valuation: a study on IT and pharmaceutical companies in India. The IUP Journal of Knowledge Management, 23 (2), 7-24.

Yadav, R. & Sur, D. (2021). Business and Financial Risks in NTPC Ltd. during the Pre-Maharatna and PostMaharatna Periods: A Comparative Analysis. Research Bulletin, 46(III & IV), 1-20.

Zeitun, R. & Tian, G. G. (2007). Capital structure and corporate performance: evidence from Jordan. The Australasian Accounting Business & Finance Journal, 1(4), 40-61.