Drivers for Wealth Creation in Firms: An Empirical Evidence from Gulf Cooperation Council Markets

  •  Rajesh Kumar    


The study examines whether the book value maximizers are the greatest wealth creators in stock market both in the context of sectors and companies in the Gulf Cooperation Council Markets. The study also analyzes the financial value drivers for wealth creation of companies in the Gulf Cooperation Council Markets. The survey part of the study is based on approximately 650 companies listed in six Gulf Cooperation Council Markets of Saudi Arabia, UAE, Bahrain, Oman, Kuwait and Bahrain. On the basis of five yearly average market capitalization, the biggest wealth creators are banking, petrochemical and energy industries and industrial sectors. Banking sector is the biggest sector in terms of market capitalization, assets, cash flow and net profit.

The empirical analysis reveals that market valuations are higher for firms which invest more in capital expenditure. Results show that sales growth is a significant value driver. Firms with higher earnings relative to price generate more value. Higher earnings signify more value creation. Small stocks tend to have higher earnings on book equity than big stocks do.

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