Index of Professionalism in Financial Decisions
What has been described and discussed in the other chapters is utilised in an attempt to develop an index of professional practices relating to financial management. The index has been developed in the basis of the responses received to a questionnaire se
- PDF / 133,411 Bytes
- 18 Pages / 439.37 x 666.142 pts Page_size
- 96 Downloads / 187 Views
Index of Professionalism in Financial Decisions
Introduction The financial performance of an organisation is generally measured by the following parameters: profit, cash flows, balance sheet strength, risk management, valuation and owners’ net worth (Stern 2012). Apart from the numbers that the above parameters generate, human psychology and the merit/demerit associated with financial decision-making also play a vital role in determining eventual corporate success (De Bondt and Thaler 1995). Keeping this in mind, the analysis of the sample companies has been carried out as presented in different chapters, based on their financial statements as well as financial policies. This chapter is based on the responses obtained from the questionnaire. The chapter sets out to rate the respondent companies based on the quality of their decision-making vis-a-vis sound finance theory. It attempts to understand the extent of professionalism behind the decisions. Eric Hoyle (1980) defines professionalisation of any activity/decision-making as having the following aspects: long period of training, qualified membership, management control and continuous improvement of knowledge and the skills of the practitioners. The decision-makers in the sample companies fulfil all the above criteria. It is obviously then expected that corporate performance would be better if activities are carried out in a professional manner, that is, by employing a systematic and sound knowledge in practice. This chapter makes an attempt to develop an index as a measure of professionalism in the area of financial management, as practised in the sample companies in India to understand if the same is true. A corporate would be called professional if its management practices are consistent with the systematic body of knowledge and tools and techniques of sound theory. This means that the professional enterprises would not follow arbitrary/ad-hoc or rule-of-thumb approach in taking decisions.
P.K. Jain et al., Financial Management Practices: An Empirical Study of Indian Corporates, India Studies in Business and Economics, DOI 10.1007/978-81-322-0990-4_8, © Springer India 2013
299
8 Index of Professionalism in Financial Decisions
300
This chapter has been divided into three sections. Section I contains the detailed methodology used for the creation of the index. Section II lists the observations based on the scores obtained in each category of financial decision-making by the respondent companies and section III contains the concluding observations.
Section I
Methodology
The basic methodology for preparation of this index has been taken from an earlier study on public sector enterprises in India (Jain and Yadav 2005). However, substantial modifications have been introduced in the questionnaire used for this study to reflect the emerging areas of research in financial management and evaluate them in terms of decision-making. Also, relatively recent aspects like corporate governance and risk management were included. The questionnaire used in the survey
Data Loading...
