Analyzing the Impact of Government Policy Measures on the Return on Equity

Abstract

The assessment of a company's Return on Equity (ROE) is a challenging task for management. The main objective of this paper is to analyse the impact of government initiatives on the ROE of listed companies in India. The Indian government has taken many policy initiatives in the last decade to boost the infrastructure sector in the country. Therefore, it is worthwhile to evaluate how these policy initiatives have impacted the ROE of companies belonging to the infrastructure sector. 43 companies are selected for the purpose of the study. Both quantitative and qualitative methods are used for data analysis. Historical financial data from 2008 to 2023 is analysed using the DuPont model. Eleven industry experts, selected on the basis of their managerial experience in the infrastructure sector are interviewed and their opinions are coded using NVivo. The study finds that 67.4% of the variation in ROE is explained by three variables, namely asset turnover, financial leverage and operating profit margin. According to the industry experts, asset turnover and operating profit have a greater impact on ROE. The results of the study validate the accountability theory and are useful for policy makers and management of companies in the infrastructure sector in particular and other stakeholders in general who are interested in the relationship between government initiatives and their impact on the company's ROE.

Keywords

• return on equity
• india
• infrastructure
• dupont
• nvivo
• government policy