Value creation in European unlisted companies: evidence from the energy sector

Abstract

This paper aims to propose an analysis of the economic and financial variables that most influence the corporate value. The study fits into the mainstream of the research devoted to the creation of value, a central theme of corporate finance. The analysis concerns the Energy sector, a strategic industry for the countries. This sector receives great attention from community policies, especially in terms of renewable energy. In fact, these represent the key to reducing emissions and achieving the ambitious goals for climate neutrality by 2050. For EU countries, the development of renewable energy is also a way to reduce dependence on energy imports and remain exposed to supply disruptions that can affect prices. The sample consists of 8,790 unlisted European companies belonging to the Energy sector and surveyed through the Amadeus Bureau van Dijk database during the 2020 year. Using the multiple linear regression model, we adopt ROE as the dependent variable, and liquidity ratio, leverage, size, cash flow on total asset and depreciation & amortization on total asset as independent variables. The result of our model indicates that value as measured by ROE is positively affected by levarage and cash flow on total asset while it is negatively affected by liquidity ratio, size and depreciation & amortization on total asset. Liquidity ratio, leverage, size and depreciation & amortization on total asset have a coefficient sign that is inconsistent with the explanatory power. Cash flow on total asset is the only one with a consistent coefficient sign, in that, there is a directly proportional and positive relationship between the indicator and ROE. This work contributes to the existing literature on the topic of value creation in European companies and in particular for unlisted ones active in the energy sector. The analysis has practical implication for managers called to designate corporate strategies as it identifies some explanatory variables of the ability to create value. The study has certain limitations, first af all the fact of basing the analysis on just one year and the consideration of Euro area as a whole. Hence the idea of further research developments based on homogeneous geographical areas, more extended time horizons and the inclusion of additional variables in the model.

Keywords: Value, financial performance, unlisted companies, Energy sector, corporate value

DOI: 10.7176/RJFA/14-20-09

Publication date: December 31^st 2023