1

Impact of Income Components in Determine the Market Value -

Evidence from Pakistan Cement Industry

Farrukh Ijaz
Student MS Finance, School of Business and Economics
University of Management and Technology (UMT)
C-II, Johar Town, Lahore, Pakistan
farrukh-ijaz@hotmail.com

Presented research paper at 5th International Conference on Business Management organized

by Institute of Business Management (IoBM), Karachi (11-12 March, 2015)

Electronic copy available at: http://ssrn.com/abstract=2643879

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Abstract

The main advantage of firm market value reference is that it provides some indications
about the relevant data required by the investors. An income statement shows the financial
operation of an entity over a period of time, which investors assumed to be the primary criteria
for evaluating the financial position. The present paper provides a comprehensive study of the
value relevance literature. This study investigates which income levels and components have an
impact on the market value. Statistical population of cement companies listed at Karachi Stock
Exchange over the time period of 2006-2011 is taken as a whole and also divided into large,
medium and small categories as well on the basis of their market size to check individual
relationship among income components and market value. Linear multiple regression, one
sample test and coorelation analysis applied for data analysis. The results indicate that market
value has strong relation with the income components except the net income variable which has
insignificant relation. However, small and medium firms have no statistical impact on the value
relevance of income components. These results were consistent with previous studies of Kallunki
et al. (1998) and Hadi (2006), who found positive impact large firms have on the market value of
a firm. Market value relevance with respect to income components of companies varies
according to their size, which means the firm size is an important aspect in value relevance of
financial figures data. Large firms investors have different source of information and resources
available with them compared to those of medium or small firms investors.

Keywords: Income Components, Market Value Relevance, Firm Size, Break-up Value, Net
Income, Regression Analysis

Presented research paper at 5th International Conference on Business Management organized

by Institute of Business Management (IoBM), Karachi (11-12 March, 2015)

Electronic copy available at: http://ssrn.com/abstract=2643879

 3

Introduction

Researchers and investors are extremely concerned with the market value relevance of
financially available information about the companies and industrial sectors. The most essential
feature to find out the excellence and quality of the companys financial reports is the market
value relevance (Francis et al., 2004). The term Value Relevance is defined as the capability of
numeric data contained in the financial reports of the firms to give some up and to the point
review about the market value of the firm. Beisland (2009) defines value relevance as the ability
of financial and accounting data to represent the security market measures. It is basically a
statistical association of the stock returns and accounting data obtained from the financial annual
reports. Value relevance is the measurement of reliability and relevance of financial figures as
reveal in the shareholders worth (Barth et al., 2001). In the Financial Statements Framework,
market value relates to the statement of the significance of value relevance (Committee 1989).
Investors believe that their investment decisions are based on the relevant information that they
get from the financial statements. An investor assesses the market value of a firm and associated
risks by using these annual financial reports and statements. Since 1990s, most studies
contributed in to the market value relevance importance of the financial numbers data, its
historical developments and its evaluation among different countries of the world. Many
researches investigate the value relevance of financial numbers disclosed in the companys
financial reports (Vishnani and Shah 2008). Tangible and intangible assets valuation can be
evaluated through two major perspectives, either by Signaling perspective (Amir et al., 1993) or
by Measurement perspective (Dumontier and Labelle, 1998); (Ali and Hwang, 1999);
(Hellstrm, 2006). The former one depicts that the change in the firm value by market share
value to the declaration of the financial figures modifications, while later one explains the
association among the characteristics of accounting measures and stock price. The idea behind
doing valuation research is to associate financial figures to firm market value to determine
uniqueness of financial reporting and their link to firm worth (Barth, 2000). This paper studies
the impact of income level and components in determine the market value relevance of the
cement manufacturing firms listed at Karachi Stock Exchange (KSE).

Research Problem: In any developed or underdeveloped economy, investments incremental in

the financial market results in the development of economy and in strengthen of the markets.

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Investors and shareholders rely too much on the financial information of the companies in order
to make effective decision making. Therefore, the research on the market value relevance on the
financial position with relevant to the income components is of significant focus for the
developing countries like Pakistan. The paper investigates value relevance from the both
perspectives. Signaling methodology is applied to investigate the firm size and measurement
methodology is used to investigate value relevance. Break-up Value (BUV) is applied as value
indexes. Also, the research work tries to study the impact of size of a firm on the value relevance
of income components, as done previously by Hadi and Neil (1998).

Research Objectives:
To find out the market value relevant variables among the income components.
To identify significant value relevant variables among the income related variables.
To determine the best model for explaining the market value relevance of a firm with
respect to the firm size.

Research Questions:
1) Whether the income components has an impact in determine the market value relevance
of cement industry?
2) Whether firm size has any effect on value relevance of income component?

Significance of Study: Value relevance researches are under major criticism. The criticism is of
due to two major facts: Firstly, it is imagine that financial statements are only used by the
investors and secondly, it is also imagine that if these annual reporting statements have a
significant association with the market value than the financial standard is preferable. Regardless
of criticism, one of the main advantages of value reference is this that it provides at least some
indications about the relevant data required by the investors. This study fills the gap in literature
by investigating the relevance of financial data in the Pakistan market. The results provide useful
evidence to other emerging stock markets. Therefore it can be useful for investors, managers and
other users.

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Literature Review

The term accounting is basically the business language. It is the art of identifying,
recording, classifying, measuring, summarizing, interpreting and communicating economic and
financial data in the form of money, events and transactions to allow users and investors to make
timely and effective decisions. It plays an important function in corresponding and creating the
companies value (Meyer, 2007). There will be no structural money flow into and out of the
business without a proper accounting system. Financial reports of a company expose any scam or
fraudulent activities, which ultimately allows the investors not to invest in the particular
company. Financial information can be used for making investment decisions by investors, for
tax purposes by the government authorities and for determine statutory requirements compilation
by the regulatory agencies (Adedeji and Kajola, 1998). Income statement and balance sheet are
two basic and important financial statements. The balance sheet concerned to facilitate loan
decisions, while the former one is used for equity valuation purposes (Holthausen and Watts,
2001). The basic objective of any firm is to gain profit and increase its market value over the
period of time by effectively and efficiently utilizing its economic resources and reducing the
costs associated with these resources. The purpose of accounting is to report on the financial
position and performance of the company over a particular period of time. The key indicators of
attracting the attention of many investors is net income and its components, which measures the
companys financial performance. The worth and quality of financial information can be
measured by the phenomenon that how well it meets its users needs (Barzegari, 2011).

The very first research work that examines the relationship between accounting results
and other financial factors was done by Miller and Modigliani (1966). Ball and Brown (1968)
examined the relationship among returns and financial information. Although the idea of market
value relevance is quite old, the term was first used by the Amir et al. (1993) in the literature.
The significance of financial disclosure to formulate market prices has gain a lot of attention
from the time; the accounting research first began (Kothari, 2001).The first person who measure
the market value relevance with the help of financial data was Bernard (1995). It basically shows
a statistical relationship among the stock market values and financial annual reports data
(Suadiye, 2012).

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Much research work has been done on the importance of income components and their
impact on the market value or returns. This approach disaggregated the components of earnings
to provide better representation of the market value. Operating and net income explains more
significant relation for market returns and both govern comprehensive income relative to
descriptive power of earnings (Agnes et al., 1993). Ohlson model explain the significance
between the financial variables (Book value per share and Earnings per share) and market value
which is mostly used in the studies in many countries (Ohlson, 1995); (Feltham and Ohlson,
1995); (Bernard, 1995); (Penman and Sougiannis, 1998); (Francis and Schipper, 1999); (Cuellar
et al., 2006); (Gjerde et al., 2008) ; (Beisland, 2009). Brief and Zarowin (1999) in to their
research work found the same results as reported earnings with book value. They study earnings,
book value and dividends value relevance. The study on the operational income and net income
and its impact on EVA were done by Chen and Dodd (1998) and Peixoto (2000). Martikainen et
al. (1998) finds the significance among net revenue, operating income, and income after tax,
adjusted income, net income and net profit with market to book equity ratio. They found direct
relation of market to book ratio with these variables. Dhaliwal et al. (1999) examine market
value relevance of three main constituents of the comprehensive income by using the US data
from 1995-96. It was also supported by Biddle and Choi (2006). There is not a positive
relationship among the market relevance among comprehensive earnings and its characteristics
found by Cahan et al. (2000) using data of New Zealand firms.

The value relevance of financial results is much less for the countries where financial
framework is not market oriented (Ali and Hwang 1999). Barth et al. (2001) explore the concept
of valuation models with the aforementioned to evaluate market value of a firm. The relationship
among stock returns and earnings was explained by Jindrichovska (2001) in the study of Czech
Republic and Pritchard (2002) in the study of Baltic countries. Both found a positive linkage
between these variables in these countries. Francis et al. (2004) argue that the vital component to
measure financial data quality is market value relevance. Hadi (2006) explains the impact of
income components, as used by Kallunki et al. (1998) in their study on value relevance in Jordan
found a positive significance among each of the variables.

Market value of the shares is significantly affected by financial information provided by

listed companies (Vishnani and Shah 2008). For the period 1950-2004, Cooke et al. (2009)

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studied time series relation of five companies of Japan and the relationship of book value of net
assets for market value. They found four companies have strong significance with book of assets
and market value. Kanagaretnam et al. (2009) determine the linkage between the Canadian
firms return values with income components to evaluate the information content. Perera and
Thrikawala (2010) found relation among financial information and market value of commercial
banks in Srilanka, whereas Al-Horani (2010) argues no such evidence when studied earning
components in respect to commercial banks market value listed at Amman Stock Exchange from
time duration of the year 2000 to year 2008. Market price per share is positively correlated with
the book value per share and earnings per share of a firm (Alali and Foote, 2011). This was also
supported by Glezakos et al. (2012) while studying the data of 38 firms listed at Athens Stock
Exchange.

Research Hypothesis
Based on the discussion above in the literature review, following hypothesis between
income components and market value are formed.

1. The value relevance of the cement companies listed on the Karachi Stock Exchange
(KSE) is not significantly affected by the income components information?
a. There is a no relationship between sales income and market value
b. There is a no relationship between gross income and market value
c. There is a no relationship between before tax income and market value
d. There is a no relationship between net income and market value
2. Does size of the firms not have significant impact on the market value reference to the
earnings components?

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Research Methodology
According to Martyn Shuttleworth, research is the compilation of information and facts
for the addition in previous knowledge. Research methodology is the collection of data and
information in order to make timely business decisions.

Sources of Data: In this study, secondary data is used. The qualitative data is in the form
of research journals, articles and literature on the value relevance and comprehensive income
components is collected from the electronic database, while quantitative data in the form of
financial figures of income statement and market value is taken from the annual reports of
cement companies listed at KSE of Pakistan and from the report Financial Statement Analysis
of the non financial sector for the years 2006-11 published on the website of State Bank of
Pakistan (SBP). Apart from this, where ever required, KSE published information is also used,
especially to take the data of market share prices of the companies.

Sample Design: The financial data duration is expanded over the 6 years period from
2006 to 2011 and the sample consists of 20 cement companies of Pakistan listed at Karachi Stock
Exchange (KSE) representing all the cement industry. The size of the firm is selected on the
basis of their market shares in the industry (Appendix A). In order to analyze market value
relevance in terms of income components and levels, financial figures are used.

Firm Size Name of Firms

Large D.G. Khan Cement, Best Way Cement, Lucky Cement, Maple Leaf Cement
Medium Attock Cement, Cherat Cement, Dewan Cement, Fauji Cement, Kohat Cement,
Lafarge Cement, Pioneer Cement
Small Al Abbas (Power) Cemnt, Dadabhoy Cement, Dandot Cement, Flying Cement,
Fecto Cement, Gharibwal Cement, Mustehkam Cement, Thatta Cement, Zeal
Cement

Data Analysis Technique: The data analysis techniques used in this study done with the
help of Microsoft Excel (MS Excel 2007) and Statistical Package for Social Sciences (SPSS
v16). Descriptive statistics, correlation analysis and one sample test are carried out with the use
of MS Excel, where as multiple regressions technique is applied by using SPSS. Multi-
collinearity problem is investigated with the help of coorelation analysis.

Data and Variables: The variables used in this study are comprised of two groups, dependent
(predicted) and independent (predictor) variables. Market Value of a firm is taken as a predicted

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variable, while independent variables are shown in the table below (Table 1). This study is
taking present independent variables as it is from the research study of Hadi (2006) and Hashim
et al. (2012). Break-up value (BUV) is used to calculate the market value of a firm. BUV is
calculated through dividing the equity value of the company to its total number of ordinary
shares. The formula for calculating BUV is

Break-up Value (BUV) = Shareholders Equity/No. of Ordinary Shares

Table 1: Independent Variables

Sr. # Full Name Definition
1 Sales Income Sales income is income received from selling goods or services over
(SALES) a period of time.
2 Gross Income Gross income is receipts and gains from all sources less cost of goods
(GROSS) sold over a given period.
3 Operating Income Operating income is a measure of a firm's profit that excludes interest
(OPR) and income tax expenses. It is the difference between operating
revenues and operating expenses.
4 Income Before Tax Income before tax is a company's earnings after all operating
(IBT) expenses, including interest and depreciation, has been deducted
from total sales, but before income taxes has been subtracted.
5 Net Income Net income is a company's earnings or profit as reported on the
(NI) income statement over a specific period of time.

Research Model: Following model is formulated and tested

Market Value (BUV) = + 1 (SALES) + 2 (GROSS) + 3 (IBT) + 4 (NI) +

Where;

BUV = Break Up Value ; IBT = Income Before Tax

= Intercept ; NI = Net Income
SALES = Sales Income ; = Coefficients of variables
GROSS = Gross Income ; = Error Term

In the above model, if the p value or t statistics value of the coefficients of the income variable
are significant at the 5% level of significance it means that the coefficients of income
components are market value relevant.

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Research Framework

Sales Income
(SALES)

Gross Income
(GROSS)

Break-up Income
Firm Market Value Components
Value
(MV)
(BUV) (IC)

Income Before
Tax (IBT)

Net Income
(NI)

Figure 1 Impact of Income Components and Levels in Determine the Firm Market Value

Presented research paper at 5th International Conference on Business Management organized by Institute of Business Management
(IoBM), Karachi (11-12 March, 2015)
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Data Analysis & Empirical Findings

Break-up Value is the net value per share and is still one of the important measures to
find the overall financial reliability and soundness of a company. It is measured by dividing the
total shareholders equity with the total ordinary number of shares. Break-up value is used to
study the impact of income components on the market value of the firms. Just before doing any
statistical analysis, correlation matrix analysis is done to check the inter correlation among
variables in all types of firms.
Table 2: Correlation Matrix of Variables
BUV Sales Gross IBT NI
BUV Pearson Correlation 1.000 .666 .543 .526 .466
Sig. (1-tailed) - .000 .000 .000 .000
N 48 48 48 48 48
Sales Pearson Correlation .666 1.000 .874 .659 .589
Sig. (1-tailed) .000 - .000 .000 .000
N 48 48 48 48 48
Gross Pearson Correlation .543 .874 1.000 .713 .628
Sig. (1-tailed) .000 .000 - .000 .000
N 48 48 48 48 48
IBT Pearson Correlation .526 .659 .713 1.000 .969
Sig. (1-tailed) .000 .000 .000 - .000
N 48 48 48 48 48
NI Pearson Correlation .466 .589 .628 .969 1.000
Sig. (1-tailed) .000 .000 .000 .000 -
N 48 48 48 48 48

From the above data table, one can observe that the significance among the all income
variables and market value (Break Up value) is positive with the level of confidence of 95%. The
strongest pearson correlation index relative with BUV belongs to net revenue income (0.67) and
gross income (0.54), where as the relation with the IBT (0.526) and NI (0.466) is moderate. So
on the basis of pearson correlation index, we can say that gross income, net sales revenue and
IBT prepare related information respectively, which means that these income components cant
be work under multiple regression analysis unless solving normality and multi-collinearity
issues. Also, to measure the income components impact on to the break-up value of the 20
cement firms listed at KSE, first it is important to study the descriptive statistics of the financial
data. So, therefore first we analyzed the descriptive of the data. Following table defines the

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descriptive statistics of the data excluding the missing values from the data by recording them
into new variables.
Table 3: Descriptive Statistics
Sale Income Gross Income Income Before Income After Break Up Value
per Year per Year Tax per Year Tax per Year per Share
N Valid 112 110 116 116 115
Missing 8 10 4 4 5
Mean 5,742,642 1,152,716 169,062 113,659 31.99
Median 3,776,103 460,471 -55,062 -75,608 20.52
Std. Deviation 5,877,757 1,951,008 1,148,893 1,113,325 41.93
Skewness 1.69 2.30 1.55 1.53 3.14
Kurtosis 2.56 5.71 4.45 4.69 10.85

The first row of the table indicates the out of the sample size of 120, 112 data set values
are valid for the sales income data, and 8 values are founded missing. Similarly 10 values are
missed for gross income data, 4 for income before tax and income after tax each, and 5 values
are missed for the breakup value per share data. The mean sales are 5,742,642 for the year with a
median of 3,776,103 and kurtosis and standard deviation of 2.56 and 5,877,757 respectively. The
average value of gross income is of 1,152,716 with quite high skewness (2.30) and kurtosis value
(5.71). Income before tax averaged at 169,062 and income after tax mean value is 113,659. The
break-up value per share is 32 per share on average basis. The deviation and kurtosis values for
all the under observation variables is very high, which also indicates some problem of normality
with the data. In order to figure it out either this variance is real or due to chance variation, we
take the help of tests of normality.

Table 4: Tests of Normality

Kolmogorov-Smirnova Shapiro-Wilk
Statistic df Sig. Statistic df Sig.
Sale Income per Year .182 108 .000 .804 108 .000
Gross Income per Year .246 108 .000 .718 108 .000
Income Before Tax per Year .191 108 .000 .865 108 .000
Net Income After Tax per Year .182 108 .000 .863 108 .000
Break Up Value per Share .328 108 .000 .599 108 .000
a. Lilliefors Significance Correction

The normality test results in the following table shows that the box displays the results
from two tests; the first column is based on Kolmogorov-Smirnov test and the second column is

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of Shapiro-Wilk test. The former test is used to test large data sets such as more than 50 values,
while the Shapiro-Wilk test is more appropriate for a smaller sample such as 50 numbers or less.
As the Sig. values of Kolmogorov-Smirnov test column is less than 0.05 (level of significance,
= 5%), it means that our data is not symmetrically distributed. In order to make the data variables
normal, we take the natural log of these variables, and than run the one sample test.

In statistical inference, the main part is to build up and test of a hypothesis. Its main
purpose is to select between the two hypothesis (Null or Alternative) about the value of a
population parameter. It is used to determine the possibility of that is the given hypothesis or
assumption is either true or false. All the hypothesis are tested using a level of significance of 5%
(or 0.05) and a confidence level of 95%. A one sample t-test is a kind of hypothesis test about the
mean for answering questions where the data figures are a random sample of predictor
observations from an underlying normal distribution.

Table 5: One-Sample Test

Test Value = 0
t df Sig. Mean 95% Confidence Interval
(2-tailed) Difference Lower Upper
logsales 125.00 111 .000 14.97 14.74 15.21
logGross 79.32 80 .000 13.48 13.14 13.82
logIBT 59.78 52 .000 12.97 12.53 13.40
logNI 56.61 51 .000 12.80 12.34 13.25
logBUV 33.92 111 .000 3.02 2.84 3.20

The t-value column in the one sample test at the level of confidence 95% (or z-value =
2.32) indicates that all the indicators have value greater than 2.32, which means that we have to
reject null hypothesis (Ho) in the favour of the alternative hypothesis (H1). Also from the Sig. (2-
tailed) column, one can observe that, the p-value the smaller, the stronger the indication against
the null hypothesis. As p-values are less than the alpha value ( = 0.05) for all the income
components indicators of market value relevance, that means null hypothesis are rejected, and
the alternative hypothesis are accepted. To further check, either these results are real or due to
chance variation, we take the help of regression analysis.

Multiple regression anlysis is a most widely and commonly used technique in the area of
research work to measure the impact of predictor variables on the predicted variable. It allows to

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predict one variable on the basis of several other variables. Results from regression are presented
in the table below of the overall cement firms.

Table 6 (a): Regression Analysis - Model Summary

Model R R Square Adjusted R Std. Error of
Square the Estimate
1 .697a .485 .437 .532

Table 6 (b): Regression Analysis - ANOVAb

Model Sum of df Mean Square F Sig.
Squares
1 Regression 11.507 4 2.877 10.136 .000a
Residual 12.204 43 .284
Total 23.711 47
a. Predictors: (Constant), logNI, logsales, logGross, logIBT
b. Dependent Variable: logBUV

a
Table 6 (c): Regression Analysis - Coefficients
Model Unstandardized Standardized Sig. Collinearity Statistics
Coefficients Coefficients
B Std. Error Beta Tolerance VIF
1 (Constant) -6.759 1.813 .001
logsales .684 .199 .780 .001 .233 4.288
logGross -.193 .135 -.359 .004 .189 5.284
logIBT .354 .263 .710 .000 .043 23.285
logNI -.197 .205 -.457 .142 .053 18.905
a. Dependent Variable: logBUV

The test showed that alternative hypothesis are significant except the net income
component, as its significance value is greater than 0.05. Also from the collinearity statistics
column, we can see that the tolerance values for all components are near to 1 and VIF values are
greater than 2, so no issue of multi-collinearity is found in the analysis. The regression equation
from the above table is formed below.

Market Value (BUV) = -6.76 + 0.684 (SALES) 0.193 (GROSS) + 0.354 (IBT) + 0.197 (NI) +

The adjusted R2 value in model summary table is 0.437, which means that 43.7% variation in
market value is caused by these four income components. R value of 0.697 indicates the strong
positive relationship strength of the model. The F statistic value in ANOVA table shows the

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overall validity of the model, means there is a significant relationship between the firms market
value with the income components and levels irrespective of their sizes. After that, regression is
applied by dividing the firms into three categories on the basis of market share and sales revenue
(Appendix - A). The results for the three analyzing groups (small, medium and large firms) are
shown in the following tables 7 to 9.

Table 7: Market Value and Income Components in Small Firms

logSales logGross logIBT logNI logBUV
Descriptive Statistics
Mean 13.86 12.04 11.49 11.58 2.73
Median 14.13 12.27 11.96 11.87 2.86
Std. Deviation 1.06 1.46 1.52 .96 1.15
Skewness -1.28 -1.69 -1.71 .07 .39
Kurtosis 1.78 3.13 4.06 -1.41 1.27
One Sample T Test
T-Value 89.17 40.35 26.07 39.94 16.09
Sig (2-tailed) .000 .000 .000 .000 .000
Regression Model
B -17.70 1.51 -0.47 -0.19 0.58
Sig 0.126 0.075 0.898 0.711
R Value = 0.755
R2 Value = 0.227
F Stats Value = 0.293

From the table income components impact on small size firms market value is highly
dissimilar from the overall industry findings. The R2 value shows only 22.7% percent
explanation in the dependent variable is explained by the income variables. The p-value and F
statistics value for the each individual variables and overall model are insignificant at 5% level
of significance. As the correlated variables are causing to explain the variation in predicted
variable which means that their coefficients significance and explanatory power are distributed
among them. For medium and large firms, regression is also applied and to the nearest same
founded as in small size firms except that gross income is significantly impacting on the market
value. If we look overall model is not statistically significant at all, as F statistics value is greater
than 0.05 level of significance.

Table 8: Market Value and Income Components in Medium Firms

logSales logGross logIBT logNI logBUV

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Descriptive Statistics
Mean 15.40 13.53 12.92 12.52 2.96
Median 15.38 13.51 13.09 13.05 2.99
Std. Deviation .37 .94 1.23 1.6 .57
Skewness -.43 -.08 -.77 -.94 .24
Kurtosis .30 .86 -.21 -.43 .13
One Sample T Test
T-Value 263.43 82.19 52.42 38.97 33.28
Sig (2-tailed) .000 .000 .000 .000 .000
Regression Model
B -0.12 0.57 -0.09 -0.05 -1.24
Sig 0.782 0.042 0.769 0.833
R Value = 0.611
R2 Value = 0.267
F Stats Value = 0.790

Table 9 reveals that the coefficients on individual variables are insignificant whereas the
regression as a whole is significant with 95% level of confidence. This means there are many
issues of multi-collinearity with our under observed variables.
Table 9: Market Value and Income Components in Large Firms
logSales logGross logIBT logNI logBUV
Descriptive Statistics
Mean 16.43 14.86 14.16 14.06 3.68
Median 16.53 14.91 14.36 14.34 3.44
Std. Deviation .42 .77 1.11461 1.17762 .68983
Skewness -.45 -.84 -1.66 -1.42 .29
Kurtosis -.35 1.53 3.77 2.41 -1.33
One Sample T Test
T-Value 188.53 93.37 50.82 47.76 26.15
Sig (2-tailed) .000 .000 .000 .000 .000
Regression Model
B 0.62 -0.06 0.06 0.06 -0.72
Sig 0.474 0.941 0.977 0.972
R Value = 0.526
R2 Value = 0.414
F Stats Value = 0.024
To overcome this collinearity issue, we use data reduction factor analysis to remove the
correlated variables from the income components. The results indicate that only sales and IBT
income components are significant for the study.

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by Institute of Business Management (IoBM), Karachi (11-12 March, 2015)
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Findings and Conclusion

The study findings show that the income levels and its components have significant
positive relation to the market valuation. These indicate that income variables help to make
appropriate judgment making for the shareholders. But when we observe these components by
dividing the overall cement industry into three groups (large, small and medium) on the basis of
market share and size, rather considering all companies as a whole in comparison, the results are
completely different. The result shows that the explanatory power is decreased for the small and
medium size firms, where as the power of large firms remain higher. Also there is no significant
impact of size of small and medium firms on the value relevance of income components. Before
classifying firms based on the size net sale, gross income and income before tax contained
higher information and net income show low amount of information content in making decisions.
Overall it is founded that size has positive impact on value relevance of Break-up value with
respect to the large size firms. Other findings indicate that earning variables have an impact on
break-up value per share of a firm. Results of present study are consistent with Kallunki et al.
(1998) and Hadi (2006).

Future Implications

The break-up value is one of the features in measuring the market value of a firm. One can do
further research by considering market value relevance indicators of market to book value or
earning per shares into the area of financial quality in the Pakistan cement industry. Secondly,
income components like operating profit income or comprehensive income can also be taken into
account. Thirdly, the duration of the study can be extendable to accurately forecast. Forth,
instead of multiple regressions one can apply simple linear regression to avoid the issue of
collinearity.

Presented research paper at 5th International Conference on Business Management organized

by Institute of Business Management (IoBM), Karachi (11-12 March, 2015)
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Appendix - A
Sr. # Cement Companies Listed at KSE as on (5th May, 2013)
01 Al-Abbas Cement Industries Ltd.
02 Attock Cement Pakistan Ltd.
03 Bestway Cement Ltd.
04 Cherat Cement Co. Ltd.
05 D.G. Khan Cement Co. Ltd
06 Dadabhoy Cement Industries Ltd.
07 Dandot Cement Co. Ltd.
08 Dewan Cement Ltd. (Pakland)
09 Fauji Cement Co. Ltd.
10 Fecto Cement Ltd.
11 Flying Cement Ltd.
12 Gharibwal Cement Ltd.
13 Kohat Cement Co. Ltd.
14 Lafarge Pak. Cement Ltd.
15 Lucky Cement Ltd.
16 Maple Leaf Cement Factory Ltd.
17 Mustehkam Cement Ltd.
18 Pioneer Cement Ltd.
19 Thatta Cement Ltd.
20 Zeal Pak Cement Factory Ltd.
(Source: www.kse.com.pk)

Market Share of Pakistan Cement Companies (FY 2010-11)

Company Name Market Share Firm Size

(%)
Lucky Cement Ltd. 18
DG Khan Cement Ltd. 14 Large
Bestway Cement Ltd. 11 (53%)
Maple Leaf Cement Ltd. 10
Attock Cement Ltd. 06
Lafarge Pak. Cement Ltd. 05
Kohat Cement Ltd. 05
Medium
Pioneer Cement Ltd. 04
(29%)
Fauji Cement Co. Ltd. 03
Cherat Cement Ltd. 03
Dewan Cement Ltd. 03
Others 18 Small (18%)
Total 100
(Source: Scribd, 2012)

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