Financial Health and Firm Valuation: Evidence from Indian Pharmaceutical Firms Using Panel Data Analysis

Abstract

This paper look at how financial health and dividend policy affects the value in the market of pharmaceutical companies listed in the Bombay Stock Exchange (BSE). Working with a dataset of 71 firms that are balanced by a panel of firms between the years 2014-2023, the research used panel data regressions to determine the relationship between financial stability, paying dividends, and the valuation of the firm. The Altman Z-score is used to measure the financial health whereas the natural logarithm of market capitalization is used to proxy market value. The empirical findings shows that financial health positively and statistically significantly influences firm value, which implies that firm value is more likely to be drawn to financially stable firms. Equally, in the fixed effects model, dividend payout ratio is inconsistent and statistically insignificant with market value. Firm size and firm age have a positive relationship with valuation followed by negative effects on leverage and liquidity as some of the control variables. It is also observed that the COVID-19 period had a negative long-lasting effect on the valuation of the firms. On balance, the paper demonstrates that financial stability and firm specific features are more important in the market value determination, and recommends a weak impact of dividend policy in the pharmaceutical industry.