rakesh d.-05114-determinants of equity share prices in the indian corporate sector
TRANSCRIPT
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 1-
A RESEARCH PROJECT ON
DETERMINANTS OF EQUITY SHARE PRICES IN THE INDIAN CORPORATE SECTOR : AN
EMPIRICAL STUDY
A Report Submitted in partial fulfillment for the award of
MASTERS IN BUSINESS ADMINISTRATION For Bangalore University
Submitted by
RAKESH D
REG NO: 04XQCM6070
UNDER THE GUIDANCE OF Prof. B V RUDRAMURTHY
M.P.BIRLA INSTITUTE OF MANAGEMENT Associate, Bharatiya Vidya Bhavan
#43.RACE COURSE ROAD, BANGALORE-560001
Determinants Of Equity Share Prices: An Empirical Study
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DECLARATION
&
CERTIFICATES
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DECLARATION
I hereby declare that this dissertation entitled “Determinants of
Equity Share Prices in the Indian Corporate Sector: an Empirical Study”
is the result of my own research work carried out under the guidance and
supervision of Prof. Dr T V Narasimha Rao, M P Birla Institute of
Management Bangalore.
I further declare that this dissertation has not been submitted earlier to
any Institute/organization for the award of any degree or diploma.
Place: Bangalore
Date: RAKESH D
Determinants Of Equity Share Prices: An Empirical Study
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PRINCIPAL’S CERTIFICATE
I hereby certify that this dissertation entitled “Determinants Of
Equity Share Prices In The Indian Corporate Sector : An Empirical
Study” is the result of research work carried out by Mr. Rakesh D bearing
the Reg no. 05XQCM6070 under the guidance of Prof. Dr T V Narasimha
Rao, M P Birla Institute of Management, Bangalore.
Place: Bangalore
Date: Dr N.S. MALAVALLI
Principal
Determinants Of Equity Share Prices: An Empirical Study
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GUIDE’S CERTIFICATE
I hereby certify that project work embodied in the dissertation entitled
“Determinants Of Equity Share Prices In The Indian Corporate Sector:
An Empirical Study” is the result of research undertaken and completed by
Mr. RAKESH D bearing the Reg no. 05XQCM6070 under my guidance and
supervision.
Place: Bangalore
Date: Prof. Dr: T. V. N RAO
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ACKNOWLEDGEMENT
In these two months I have worked on it & I feel indebted to many and
extend my heartful gratitude and profusely thank those people who not
only gave assistance to me but also participated in the making of this
project. First and foremost I would like to express my sincere gratitude to my
research guide Prof. Dr: T. V. NARASIMHA RAO, Adjunct Faculty,
M.P.Birla Institute of Management, Bangalore for his constant
encouragement and guidance in the course of the research investigation.
Further, I would also like to thank all the faculty members of
MPBIM who have helped me in completing my project. I have gained a lot of
knowledge throughout the course of carrying out this project.
I would like to sincerely thank my Parents and all my Friends who
have helped me in completing this project by providing me with the
psychological and academic support.
RAKESH D (Reg No. 05XQCM6070)
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INDEX CONTENT PAGE NO EXECUTIVE SUMMARY…………………………………………..10 CHAPTER 1: INTRODUCTION & THEORETICAL BACKGROUND
1.1 Introduction…………………………………………………11 1.2 Evolution ……………………………………………………13 1.3 Other leading Indian Stock Exchange operations……......14 1.4Security analysis……………………………………………..15 1.5 Financial Analysis…………………………………………..15 1.6Macroeconomic analysis………………………………….…20 1.7Industry analysis…………………………………………….22
CHAPTER 2: LITERATURE REVIEW 2.1 Paper 1 Determinants of equity share prices in the Indian Corporate sector…………………………………………24 2.2 Paper 2 Determinants of stock prices in India………….….29 2.3 Paper 3 Determinants of equity prices: a study of select Indian companies………………………….……………...31 2.4 Problem Statement……………………………………….….37
CHAPTER 3: RESEARCH METHODOLOGY
3.1 Objectives and Scope of Study ……………………………...38 3.2 Sample and Period of Study ………………………………...39 3.3 Sources of Data ………………………………………….…...40 3.4 Period of Data …………………………………………….….40 3.5 Statistical Procedure …………………………………….…..41 3.6 Variables Used In Determining the Equity Share Price …..41 3.7 Limitations of the study ……………………………………..44
CHAPTER 4: ANALYSIS OF DATA & INTERPRETATION OF RESULTS
4.1 Descriptive Analysis ……………………………………….….50 4.2 Correlation Matricies & Regression Tables……....................60 4.4 Interpretation of Results………………………………………88
CHAPTER 5: CONCLUSION ………………………………………….90
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CHAPTER 6: BIBILOGRAPHY & ANNEXURES………….…….92 Table 1: list of sectors included in study in Paper 1……………..…25
Table 2 list of industries selected for this study…………………..…39
Table 3 interpretation of results year wise ……………………........88
Table 4 interpretation of results industry wise……………………...89
Table 5 list of companies included in the study………………….....95
Table 6 no of sectors and companies included in the study……......96
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EXECUTIVE SUMMARY
Share price is the most important indicator which is readily available to the investors for
their decision to invest or not to invest in a particular share. Financial theories suggests
that share price changes are associated with changes in fundamental variables which are
relevant for share valuation like payout ratio, dividend yield, capital structure, earnings,
size of the firm and its growth. However the actual fundamental factors found to be
relevant may vary from market to market.
The study examines the empirical relationship of explanatory variables namely
dividend payout, earnings per share, book value equity and reserves and surplus, price
earnings ratio, return on capital employed and growth on the market price of the shares.
The relationship between independent variables of 87 companies is studied over a period
of 5 years from 2002 to 2006.
The result revealed that Earnings Per Share the only determinant which is
common in both the analysis (year wise and industry wise). Therefore EPS is an
important determinant of share price.
If we look particularly into the year wise analysis- Book value also influences in
the dependent variable i.e. share price. And looking into industry wise it is found that
Price earning ratio also influences significantly on the dependent variable. The other
independent variables like Return on capital employed and dividend per share remain
insignificant but with a positive value. They are not significant determinants of share
price.
The regression analysis clearly depicts that Growth and payout remains most
insignificant determinant with negative value. They do not have any influence on the
share price. Overall the R2 ranges from 13 % to 56 % (except for automobile industry).
It means less than 50 % of variation in dependent variable is explained by these
independent variables.
Finally it can be concluded that apart from the above variables there are some
other factors which influences the share price. Those factors may be macroeconomic
factors like government policy, federal bank policy, central bank interest rates, business
cycle, demand and supply shocks, GDP, inflation, exchange rates. Etc.
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CHAPTER I
INTRODUCTION
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INTRODUCTION
The literature on fundamental analysis on valuing stocks is perhaps one of the earliest
developments in the literature on security analysis. It perhaps sought to find an answer to
the age-old adage — ‘What explains stock prices?’ However, various limitations of the
models used in fundamental analysis led to the development of various alternative
valuation models.
Share price is the most important factor readily available to the investors for their
decision to invest not in a particular share. Theories suggest that shire price changes are
associated with changes in fundamental variables with changes in valuation like payout
ratio, dividend yield, capital structure, earnings, size of the firm and its growth.
Investigations of share price changes appear to yield evidence that change in
fundamentals variable(s) should jointly bring about changes in share prices both in
developed and emerging markets. However the actual fundamental factors found to be
relevant may vary from market to market. The changes in asset growth of firms are
significant in case of Japanese shares while earnings appear to be universally a relevant
factor. However, it is widely agreed that a set of fundamental variables as, suggested by
individual theories is no doubt relevant as possible factors affecting share prices changes
in the short and the long run
Knowledge of relative influence of fundamental factors on equity share prices is
helpful to corporate, management, government and investors. To the corporate
management an understanding of the valuation mechanism in stock market is essential for
the sound financial management of the company. An understanding of determinants of
share prices is useful to dividend payment, bonus declaration, right issues, etc. Investors
can also form better judgments and make intelligent and rational investment decisions.
Investors in shares usually make constant use of these various variables (or
gauging the relative merit of a script. These calculations are in no sense, final
determinants of equality and value but they are convenient indicators about the
performance of equity shares.
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Due to liberalization, privatization and globalization, Indian capital market has
witnessed considerable changes in 1990s and 2000s. As a consequence, the relative
importance of the variables determining the share prices has also undergone some
changes. All these developments have increased the importance of striving towards the
basic goals of financial management i.e., maximizing the price of firm’s common stock
and therefore shareholders wealth. For a firm whose equity shares are actively traded on
the stock market the wealth of equity shareholder is reflected in its marker value. Hence,
the goal of financial management for such firms should be to maximize the market value
of equity shares.
The decade of 1990s i.e., post reforms era has witnessed radical changes in public
policies in India that can be expected to have an effect on the environment within which
firms operate. The financial sector also experienced deregulatory initiatives in the form of
unfreezing of interest rare controls and public policy initiatives to encourage the growth
of financial markets—for both equity and debt (bonds) instruments. Decisions located
within the boundaries of the firm therefore, play a greater role in driving the equity share
prices, under the new policy regime.
Financial management in any company is largely concerned with two main
functions: Procurement of funds and utilization of funds. There are three major decision
areas in any decisions and the dividend decisions. While procurement of funds is largely
the result of financing decisions, utilization of funds is the result of investment decisions.
Investment is the economic decision of committing a set of fixed monetary resources
with the expectation of receiving a stream of returns over a reasonable long period of
time in the future. Since the decision to invest in securities is revocable, investment ends
are momentary and investment environment is fluctuating, the reliable bases for reasoned
expectation become more and more ambiguous as one envisages of the distant future.
Investment is concerned with the purchase and sale of financial assets and an
attempt of the investor to make logical decisions about the various alternatives in order to
earn suitable return.
The investor has various alternative options for investing savings to flow in
accordance with his preference. Savings are generally flown into investment with an
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expectation of return, but savings kept as cash are unproductive (i.e., they do not earn any
reward). Savings arc invested into return yielding assets depending on their risk and
return characteristics.
EVOLUTION Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure. The
East India Company was the dominant institution in those days and business in its loan
securities used to be transacted towards the close of the eighteenth century. By 1830,
business on corporate stocks and shares in Bank and Cotton presses took place in
Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers recognized by banks and merchants during 1840 and 1850.
The 1850 witnessed a rapid development of commercial enterprise, brokerage
business attracted many men into the field, and by 1860, the number of brokers increased
into 60. In 1860-61 the American Civil War broke out and cotton supply from United
States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of
brokers increased to about 200 to 250. However, at the end of the American Civil War, in
1865, a disastrous slump began (for example, Bank of Bombay Share, which had touched
Rs 2850, could only be sold at Rs. 87).
At the end of the American Civil War, the brokers who thrived out of Civil War
in 1874, found a place in a street (now appropriately called as Dalal Street) where they
would conveniently assemble and transact business. In 1887, they formally established in
Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively
known as .The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in
the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was
consolidated.
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OTHER LEADING CITIES IN STOCK MARKET OPERATIONS
Ahmedabad gained importance next to Bombay with respect to cotton textile industry.
After 1880, many mills originated from Ahmedabad and rapidly forged ahead. As new
mills were floated, the need for a Stock Exchange at Ahmedabad was realized and in
1894, the brokers formed "The Ahmedabad Share and Stock Brokers' Association". The
cotton textile industry was to Bombay and Ahmedabad, the jute industry was to Calcutta.
In addition, tea and coal industries were the other major industrial groups in Calcutta.
After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares,
which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom
between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta
Stock Exchange Association".
In the beginning of the twentieth century, the industrial revolution was on the way
in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and
Steel Company Limited in 1907, an important stage in industrial advancement under
Indian enterprise was reached. In 1920, the then demure city of Madras had the maiden
thrill of a stock exchange functioning in its midst, under the name and style of "The
Madras Stock Exchange" with 100 members. However, when boom faded, the number of
members stood reduced from 100 to three, by 1923, and so it went out of existence. In
1935, the stock market activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation companies were floated.
In 1937, a stock exchange was once again organized in Madras - Madras Stock
Exchange Association (Pvt) Limited. Lahore Stock Exchange was formed in 1934 and it
had a brief life. It was merged with the Punjab Stock Exchange Limited, which was
incorporated in 1936.
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SECURITY ANALYSIS
FINANCIAL ANALYSIS
The most important quality for financial analysis is the passion to go for, go into and go
beyond numbers. Let us begin by unlearning some common misconceptions. Many
people relate financial analysis to number crunching. There are some others who have set
benchmarks for financial ratios and numbers, like a current ratio of 2 or debt to equity
ratio of 1, etc. Many have a tendency to calculate expected share price by multiplying
EPS with a normative P/E. Were financial analysis such simple arithmetic, we would
have given you a spreadsheet with pre-written formulae rather than this verbose piece.
You have some acquired knowledge and techniques and then it is all upon your judgment
and experience. Yes, numbers are important. Financial analysis starts with numbers. But
it does not end there.
Ratio
A ratio is nothing more than a simple division of two numbers. Often numbers by
themselves do not convey anything until they are related. In financial analysis, we need
qualitative information and try to read between the numbers. We have to ask all the right
questions. Over the years, there are some ratios, which have become more popular and
handy for rule of thumb analysis of financial statements. Our purpose in this note is not
deride them but to advice the reader to use them properly to derive the correct results.
Key Objectives of a Business
Before you look at different ratios, let us look at a firm's objectives in a capitalist market.
The one and only intention of any firm is to maximize shareholders value, which is
effectively done by getting a bigger bang out of the capital employed. Exceptional cases
like charity, passion, hobbies, etc also try to maximize return on capital employed, but
there the definition of capital is different. For the time being, let us stick to financial
capital.
While businesses claim to have multiple objectives such as market share, brand
building and even social objectives, at the end of the day, what really matters is how
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much money one makes. All are strategies to maximize return on capital employed,
which is the one and only long term goal of all management. Obviously one will look at
money made in relation to one's investment. If you use 10 times as much capital and
make 5 times more money, it is of no good. If business A earns Rs10 on Rs 100
investment (10%), it is better than another business B that earns Rs50 on Rs1000 (5%).
To analyze the performance of any business, the key ratio is therefore Return on
Capital Employed (ROCE). We can further analyze this ratio using models popularly
know as The DuPont model.
The model starts with analysis of ROCE in its two constituents
• Profit margin on sales
• Sales per unit of capital invested
To give an example, say business A is one in which Rs100 capital invested in a
year generates sales of Rs100 with net profit margin of 10%. Whereas, in business B
Rs100 investment generates a turnover of Rs500 but with a net profit margin of only 4%.
As you can see, in business B, net profit margin can be lower but is more than
compensated by the fact that turnover generated per unit of capital invested is
significance higher or capital turnover ratio is higher. Return on capital invested is the
product of sales margin and capital turnover ratio. The same can be presented in the
formula as follows.
(Net profit/ sales) * (sales/ capital employed) = Return on capital employed
Profit Margin.
We all know that profit is revenue minus cost. Each element of cost can be presented as a
% of revenue and at different levels of costs; we have different versions of profit, i.e.
EBIDTA, EBIT, EBT, etc. EBITDA margin is a good indicator of operational efficiency
of any company.
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Even revenue can be broken up for the purpose of analysis, which is of use in a
multi product, multi division entity. Typically, analysts look at the relative share of other
income, because this item is where most Indian companies show extra ordinary profits to
boost their bottom line.
Return Ratios
There are two types of providers of capital, owners and lenders. As returns to lenders are
fixed, we don't have to calculate any return ratio on debt, as the same is predetermined.
From owners' perspective, the key ratio is return on net worth. Net worth represents
owners' funds, paid up capital and retained profits called as reserves. As an owner, you
would also be interested in knowing how much return is being generated by the total
capital employed. Capital employed consists of net worth plus debt, i.e. owned and owed
money. So when we calculate this ratio we have to add back the cost of debt, i.e. adjust
for interest expenses. This ratio is calculated primarily on pre-tax basis and it is
equivalent to EBIT (Earnings before Interest and Tax) divided by total capital employed.
If we want to calculate it on post-tax basis, we will have to add interest adjusted for tax
i.e.
EBT + interest*(1-T)/ capital employed, where T is the tax rate.
Add Back Interest for ROCE
Because, while calculating ROCE, we have to add back interest. This ratio calculates the
returns to all the providers of capital. As mentioned earlier, capital can be debt or equity.
On debt, we pay interest while entire PAT belongs to equity holders. Therefore, when we
calculate return on capital employed, we have to do so before any payment is made to the
providers of capital. So if we do not add back interest we will be taking profits after
making some payment to the provider of capital thereby distorting the real picture.
Per Share Ratios
An equity share is a legal document representing ownership of any entity. Shares of listed
companies trade in stock markets. It therefore makes sense to look at most profitability
indicators on a per share basis. The key ratio is earnings per share which is net profit (if
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the company has issued preference capital, then one must remove preference dividend to
reflect what belongs to the common equity holders only) divided by number of
outstanding shares.
One variant of this ratio of cash earnings per share, which is cash, profited
divided by number of outstanding shares. Cash profit is equivalent to profit after tax plus
depreciation and other non-cash charges.
In stock market, a fraction of ownership known as shares is traded. Therefore in
order to arrive or get a proper picture of the worth of a share (one unit of the company),
we should look at numbers calculated on a per share basis. Earnings per share are profit
after tax (adjusted for preference dividend if any) divided by number of outstanding
shares.
Similarly, you can calculate cash profit per share, sales per share, etc. This will
facilitate valuation and comparison with other companies. The most famous of the
valuation ratios is the Price earnings ratio (P/E ratio), which the current market is priced
of the share divided by the earnings per share.
Dividend per share
The owner can allow profits to remain within business or can withdraw it for other or his
personal use. When he withdraws, it is analogous to dividend payout. In a company, the
management decides on behalf of the owner, whether or not to retain a part of profits
within the company (that is called retained earnings) and gives back a part of profits to
the owners called dividends.
Dividend per share is the total dividend paid per equity share. In case there was a
fresh issue of equity capital in the year, most companies make pro rata payment, i.e.
supposing in a financial year (April to March) there was an issue of equity shares on
October 1. The new shares, which were issued on Oct 1, will be entitled for only 50%
dividend as compared to other shareholders who were there for the full year.
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Trends in Some Key Ratios
By trends we mean progress year after year. So one can look at trends in sales, fixed
assets, working capital and trends in various ratios. Trends in some key performance
ratios such as operating margin, return on net worth also convey meaningful results. For
instance, operating margin that was 8% last year and 9% this year.
Comparison
One can make comparisons across years in terms of trends in margins, growth or
comparison across companies within a sector or across a sector, by comparing large
companies in both the sectors and sector aggregates. And firms of the same industry are
compared on various parameters. One can look at aggregate numbers of one industry and
compare them with aggregate numbers of another industry to understand the differences
in performance of various industries. For instance, if you look at the consumer durable
industry which might be generating a return on networth of 8-10%, whereas software
industry may be generating a return on networth of 40-50%. So one can easily conclude
that software industry is doing significantly better than the consumer durables industry.
MACROECONOMIC ANALYSIS
To determine the proper price for a firm’s stock, the security analyst must forecast the
dividend and earnings that can be expected from the firm. This is the heart of
fundamental analysis – that is, the analysis of determinants of value such as earnings
prospects. Ultimately, the business success of the firm determines the dividends it can
pay to shareholders and the price it will command in the stock market. Because the
prospects of the firm are tied to those of the broader economy however, fundamental
analysis must consider the business environment in which the firm operates. For some
firms, macroeconomic and industry circumstances might have a greater influence on
profits than the firm’s relative performance within its industry. In other words, investors
need to keep the big economic picture in mind.
Therefore, in analyzing a firm’s prospects it often makes sense to start with the
broad economic environment, examining the state of the aggregate economy and even the
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international economy. From there, one considers the implications of the outside
environment on the industry in which the firm operates. Finally, the firm position within
the industry is examined.
Following are some International factors relevant to firm’s performance:
The Global Economy
The top down analysis of a firm’s prospects must start with the global economy. The
international economy might affect a firm’ exports prospects, the price competition it
faces from competitors, or the profits it makes on investments abroad. Certainly, despite
the fact that the economies of most countries are linked in a global macro economy, there
is considerable variation in the economic performance across countries at any time. It
includes factors like growth rates of respective nations, currency exchange rate, global
industrial output etc.
The Domestic Macro Economy
The macroeconomy is the environment in which all firms operate. The importance of
macroeconomy is determining investment performance to forecasts earnings per share. It
includes Gross Domestic Product, Employment, Inflation, Interest rates, Budget Deficit,
etc
Demand And Supply Shocks
A demand shock is an event that affects the demand for goods and services in the
economy. Examples of positive demand shock are reduction in tax rates, increase in
money supply, increases in government spending or increases in foreign export demand.
A supply shock is an event that influences production capacity and costs.
Examples of supply shocks are changes in the prices of imported oil; freezes,
floods, or droughts that might destroy large quantities of agricultural crops; changes in
educational level of economy’s workforce; or changes in the wage rate at which the labor
force is willing to work.
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Federal Government Policy As previous section would suggest, the government has two broad classes of macro
economic tools- those that affect the demand for goods and services and those that affect
the supply. However issues such as government spending, tax levels, monetary policy,
national policies on education, infrastructure (such as communication and transportation
system), research and development also are properly regarded as part of macroeconomic
policy.
Business Cycles
The economy recurrently experiences periods of expansion and contraction, although
length and breadth of those cycles can be irregular. This recurring pattern of recession
and recovery is called business cycle.
As economy passes through different stages of business cycle, relative
performance of different industry groups might be expected to vary.
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INDUSTRY ANALYSIS
Industry analysis is important for the same reason that macroeconomic analysis. Is not
surprisingly, industry group exhibits considerable dispersion in their stock market
performance. Even small investors can easily take positions in industry performance by
using mutual funds with an industry focus.
Defining an industry
Although we know what we mean by an “industry” it can be difficult in practice to decide
where to draw the in between one industry and other. Consider for example the financial
industry the forecast for 2002 growth in industry earnings per share was 16.7%, but the
financial “industry” contains firms with widely differing products and prospects. Several
industry classifications are provided by many analysts for example Standard & Poor.
Sensitive to the business cycle
Once analyst forecast the state of macro economic it is necessary to determine the
implication of that forecast for specific industries. Not all industries are equally sensitive
to the business cycle. For example the cigarette industry is largely independent of the
business cycle demand for cigarette doesn’t seem effected by the state of the
macroeconomy in a meaningful way. It is a matter of habit in contrast, are automobile
production is highly volatile. In recession, customers can prolong the lives of their cars
until their income is higher.
Three factors will determine the sensitivity of a firms earnings to the business cycle.
• Sensitivity of sales
• Degree of operating leverage
• Financial average
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CHAPTER II
LITERATURE REVIEW
& PROBLEM IDENTIFICATION
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REVIEW OF LITERATURE A number of empirical studies have been conducted in India and abroad on relationship
between market price of shares and explanatory variables namely, dividend per share,
earnings per share, book value per share, size, cover, return on capital employed and
payout ratio.
PAPER I: DETERMIINANTS OF EQUITY SHARE PRICES IN THE
INDIAN CORPORATE SECTOR:
Shefali Sharma and Balawinder Singh
This study examines the empirical relationship of explanatory variables namely, dividend
per share, earnings per share, book value per share, size, cover, return on capital
employed and payout ratio on the market price of shares in the post reform era. The
relationship between independent and dependent variables of 160 companies is studied
over a period of five years spanning from 2001 to 2005. The results reveal that earnings
per share and book value per share are important determinants of share price as they are
indices healthy financial position of companies. Dividend per share is the important
indicator of share price which shows that the companies should adopt a liberal dividend
policy to activate the primary as well as secondary market. A high dividend rate may also
help in increasing the market price and result in high capital appreciation to share holders
as depicted by the payout ratio and cover. Price ratio investor reflects investor
expectations of growth in a firm’s earnings that vary from industry to industry.
Database and Research Methodology
The present study deals with fundamental analysis of share valuation as it focuses on
factors relating to company. This section explains in detail the objectives, period, sample
and database of the study.
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Sample and Period of Study
The data employed in the study relates to manufacturing sector of companies listed on
Bombay Stock Exchange. 160 companies covering the following industries have been
finally selected for the purpose of the study
Table 1
Industry No. of Companies
General Engineering 28
Cotton Textile 23
Chemical 33
Iron and Steel 26
Electrical 28
Miscellaneous 22
Total 160
While selecting the sample of the companies from six industries, the following criteria is
adopted
The necessary financial data required lot calculating the measures of dependent and
independent variable pertaining to all the years 2001-2005 is available.
The companies did not skip dividend for any two successive years are included
the sample
The companies whose average earnings per share of any three successive years
are not zero or negative is also considered.
Further only those companies whose price data is available are retained in the
sample size.
The listed shares on Bombay Stock Exchange are considered.
Determinants Of Equity Share Prices: An Empirical Study
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Regression model
The linear multiple regression model has been applied primarily to minimize the problem
of multicollinearity. This technique of multivariate analysis was selected because it is the
most appropriate tool for evaluating the individual and combined effect of a set of
independent variables on dependent variables. The significance of the coefficient of a set
of independent variables was tested at 1% and 5% by computing t-values. To determine
the proportion of explained variation in dependent variable, coefficient of multiple
determination (R2) was worked out. The overall significance of regression equation was
tested with the help F-values.
Company Performance Variables and equity share prices
Share Price (SP)
The forces of demand and supply in the market determine the market price of the share.
SPt = (PH + PL) /2
Where PH is the highest market price, PL is the lowest market price during the year,
which relates to‘t’ period.
Book Value (BV)
It is also known as net asset value per share because it measures the amount of assets,
which the corporation has on behalf of each equity share BV shows the net investment
per share made in the business by the share holder. It is calculated as follows:
Book Value Per Share = Equity Share Capital + Shareholders Reserves
Total no. of Equity Shares Outstanding
Cover (C)
It shows the extent to which the dividend per share is protected by the earnings of the
company. Cover has a negative relationship with market price. It is calculated as follows
Cover = Profits after tax and preference dividend
Dividend
Determinants Of Equity Share Prices: An Empirical Study
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Or
Cover = Earnings per share
Dividend per share
Dividend Per Share (DPS)
It refers to the actual amount of dividend (gross) declared per share. The net profit after
taxes belong to shareholders but the income that they really receive is the amount of
earnings distributed and paid as cash dividend. The dividends generally influence the
share price in positive direction as depicted by earlier studies.
Dividend Per Share = Total amount (dividend) paid to equity shareholders
Number of Equity Shares Outstanding
Earnings Per Share (EPS)
The Equity shareholders are the sole claimants to the net earnings of the corporation after
making payment of dividend to the preference shareholders. The significance of this ratio
flows from the fact that higher the earnings per share the more is the scope for a higher
rate of dividend and also of retained earnings, to build up the inner strength of the
company. Therefore, a higher EPS would increase the market price and vice versa. It is
calculated as follows:
EPS= Net Income after interest, income tax & preference dividend
Numbers of Equity Shares Outstanding
Dividend Payout Ratio (D)
Dividend Payout shows the percentage share of the net profits after taxes and preference
dividend paid out as dividend to equity shareholders. It can be calculated by dividing the
total dividend paid to the equity shareholders by the total profits/ earnings available for
them. Alternatively, it can be found out by dividing DPS by EPS. . This predicts direct
Determinants Of Equity Share Prices: An Empirical Study
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relation between payout ratio and the price-earning multiple. Conversely it means that
there is an inverse relation between payout ratio and share price changes.
Dividend Payout = Total Dividend to equity shareholders * 100
Total Net Profit belonging to Equity shareholders
Or
= Dividend per share / Earnings pet share
Price Earning Ratio (P/E)
P/E ratio expresses the relationship between the market price of a company’s share and
it5s earnings per share. It indicates the extent to which the earnings of each share are
covered by its price. The ratio helps an investor to make an approximate calculation of
the time required to recover his investment in a company’s share. The price ratio has a
positive relationship with market price (Dixit, 1986). It was calculated as follows:
P/E = Market price per share * 100
Earnings per share
Return on Capital Employed (ROCE)
The return on investment indicates the efficiency with which a company utilizes funds
invested in it. This ratio reveals how well the resources of a firm are being used, higher
the ratio better are the results. The inter comparison of this ratio determines whether the
investments are attractive or not as the investor would like to invest only where the return
is higher. It generally has positive relationship with marker price of equity share. It is
computed as follows
Total Capital Employed = Profit after tax, plus interest * 100
Total Capital Employed
Determinants Of Equity Share Prices: An Empirical Study
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Size (S)
The size of the firm if captured through total capital employed is expected to influence
the share prices positively as large firms are better diversified than small ones and thus
are less risky (Benishy, 1461). Atiase (1985) showed that as the size of the firm increases,
their share price volatility declines. The large size firms are expected to have higher
market values of their shares. For studying the influence of size on equity share price,
size may be measured in terms of total assets, turnover paid up capital, net worth, sales,
number of shares outstanding, etc. The amount of total assets is taken as a measure of
size because it represents the total resources at the command of the (Sachdeva, VP L994).
Conclusions
The results reveal that Earnings per share and book value per share are the important
determinants of share price as they are an index of the sound financial position of the
companies. Dividend per share is important determinant of the share price which shows
that companies should adopt a liberal dividend policy to activate the primary as well as
secondary market. A high dividend rate may also help in increasing the market price and
result in high capital appreciation to the shareholders as depicted by payout ratio and
cover. Price-earnings ratio too showed investors expectation about the growth in the
firm’s earnings that varied from industry to industry.
PAPER 2 DETERMINANTS OF STOCK PRICES IN INDIA
Subir Sen, Rajkumar Ray
In this paper, an attempt has been made to explore the possibility of explaining the P/E
(Price- Earning Ratio) of Indian stocks it terms of certain key variables through a
decomposition study. The statistical model being used is the well known as ‘Whitbeck
kisor Model’ the feasibility of the model has been tested out on the variables as used as
by the authors (Whitbeck and kisor 1963) i.e. earnings per share, payout ratio and
coefficient of variation in explaining variation in stock prices. The findings revealed that
the dividend payout ratio is by far the single most important factor affecting stock prices,
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followed by earning per share. Coefficient of variation in earnings per share has a very
weak influence on stock prices.
Research Methodology
This study intends to find a relationship by explaining the P/E of stocks in terms of
certain independent variables with the help of multivariate regression analysis. After
identifying the variables responsible for affecting P/F, a causal relationship between the
dependent and independent variables will he obtained. The significance of each of the -
independent variables together with the overall validity model will he statistically tested.
Then we will attempt to find the difference between a models based on historical growth
in earnings per share vis-à-vis forecasted growth in earnings per share, other variables
remaining the same. The next part will carry out a valuation study to see the robustness of
the model,
For the multivariate regression analysis, the following relationship is proposed.
(P/E) =C1 + C2 (EPS) + C3 (DPR) + C4 (CV)+Ui
Where, EPS=normalized growth in earnings per ,
CV=coefficient of variation in actual earnings per share,
Ui =idiosyncratic error term,
CI =autonomous value of P/E if all other variables were zero,
DPR=dividend payout ratio,
C2, 03 and 04 are the regression coefficients of EPS, DPR and OV
respectively.
Annual growth in EPS is arrived at by regressing the logarithmic (Ln) values of the
actual EPS The slope of the line of best fit obtained through the scatter diagram shows
the normalized’ growth. In the Indian context, it is very difficult to fix a very rigid time
frame for deriving the EPS growth, mainly because of frequent dilution and / or
adjustments in equity, which indirectly suppresses the EPS growth. To overcome this
difficulty we took the sample time frame in which the growth path had a coefficient of
determination (r2) exceeding 80%. All the 30 stocks fulfilled this criterion. The
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prospective DPR was estimated on the ratio of dividend payout in 1999 is actual EPS in
the same year. The coefficient of variation (CV) of historical growth in EPS was
calculated by dividing the standard deviation of EPS by its arithmetic mean,
The multivariate regression analysis carried out with P/E as the dependent
variable and the annual growth in EPS. Dividend Payout Ratio (DPR), and coefficient of
variation in EPS as the independent variables, revealed the following results
Conclusion
In this paper, we have attempted to test the validity of the - Kisor Model” the Indian
context, and as such we did not in any way try to modify the original model. It is evident
from the results of the above study that the P/E Model as proposed by Whitbeck and
Kisor (1963), is valid in the Indian context, though to a much lesser extent A look at the
individual variables revealed that the Dividend Payout Ratio (DPR) is by far the single
most important factor that affects P/E of stocks in India. Growth in earnings per share
(EPS) was also found to he relevant, although to a much lesser extent. The only
parameter that was found to have very little significance was Coefficient of variation in
earnings per share (CV) and it could have been excluded from the model without
affecting its validity to any great extent.
PAPER 3. DETERMINANTS OF EQUITY PRICES: A STUDY OF
SELECT INDIAN COMPANIES
Monica Singhania*
In the last one and a half decades, many emerging capital markets have undergone drastic
changes in terms of market microstructure changes, specifically in secondary markets.
One of the policy concerns is the factors determining equity prices in markets. The author
studies the various determinants of equity share prices with reference to Indian stock
market. The mean values have shown that during the period 1997 to 2004, the market
price was far lower due to various uncertainties prevailing in the country.
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The correlation analysis shows positive significant (1%) association of only price
earnings ratio with market price. Book value, dividend cover, DPS, EL and growth are
positive but insignificant. At the same time, there is negative insignificant association of
yield with Market Price (MP). While regression analysis depicts that book value,
dividend per share, earnings per share and price earnings ratio are significant
determinants, whereas, dividend cover and yield are insignificant with negative value.
Growth remained insignificant but with positive value.
Finally it can be concluded from correlation and regression analysis that price
earnings ratio, earnings per share, book value and dividend cover are the variables, which
contributed the most in determining share prices followed by dividend per share and
yield.
Research Methodology The study is based primarily on the data collected from the CMIE (Center for Monitoring
of the Indian Economy) Prowess database. The data for the sample companies is obtained
from CMIE is supplemented with information from various financial dailies, magazine
reports, industry reports, annual reports of the companies, etc.
Sample Selection and Period of the Study
The data used in the study are related to those manufacturing companies listed on the
Bombay Stock Exchange (BSE) for which the data is available in the Prowess database.
The analysis is confined to BSE listed companies only because all the listed companies
are required to follow the norms set by SEBI for financial reporting. Another reason for
the selection was the fact that BSE has the second largest number of domestic quoted
companies on any stock exchange in the world after NYSE, and has more quoted
companies than either the London or the Tokyo stock exchange. The period of the study
is from 1997 to 2004. There are basic reasons behind selection of this period as period of
the study. This period relates to the post-Liberalization era for the Indian economy which
is more relevant for study of corporate behavior. Also, this is the period for which
maximum financial information is available in the database.
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Statistical Analysis
The data collected relating to the sample companies is analyzed using multiple regression
to study the impact of explanatory variables on equity share prices (i.e., market price). On
the basis of the aforesaid analysis, a suggestive framework is built which may assist in
making future predictions regarding behavior of market price of equity shares.
To achieve the objectives of the research study, the following relationship of
independent variables with dependent variable is formed:
MP =f(BV, DPS, EPS, DC, GH, P/E, DY)
Where,
MP = Marker Price of Equity Share,
BV = Book Value,
DPS = Dividend Per Share,
EPS=Earnings Per Share,
DC = Dividend Cover Growth,
P/E = Price Earnings Ratio,
DY=Dividend Yield.
In order to study the impact of explanatory variables on dependent variable, the
following statistical techniques have been employed:
Mean Values:
Mean values of the dependent and independent variables have been computed. The mean
values are co with the values of the ground data of the different variables over the period
of study and to analyze the effect of explanatory variables on the dependent variables.
Standard Deviation
Standard deviation of dependent and explanatory variables has also been computed to
examine the variation in various variables from their means values and also to analyze the
consistency and homogeneity in data collection.
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Correlation
The analysis of the degree of linear association between various variables used was
carried out with the help of Karl Pearson’s correlation method. The lower the value of ‘r’,
the lower is the degree of linear relationship between the variables. The value of’ ‘r’
needs to be interpreted accurately because a low value of ‘r’ may be due to the non-linear
relationship between these variables. Also the high degree of correlation does not imply
cause and effect relationship between two variables. The significance of the correlation
coefficient is tested with the help of t-test distribution at 1% and 5% level of
significance.
Regression
A linear multiple regression in has been selected to measure the combined effects of
explanatory variables on the dependent variable.
The general form of multiple linear equation is:
Y = bo +b1X1+b2X2 +...+bnXn
where,
Y = Dependent Variable,
X1, X2, X3 = Independent Variables,
bo =Regression Constant, and
b1,b2,…… bn = Regression Coefficients of independent variables.
The statistical significance of regression coefficients was worked out and tested
by applying ‘t’ test. The coefficient of determination R2 was computed to determine the
percentage variation in the dependent variables.
Also with a view to account for the loss of degree of freedom resulting from the
inclusion of additional explanatory variables, the adjusted R2 was computed. The ‘F’
value was also computed to test the significance of the R2 with ‘F’ distribution at 1% and
5% significance level.
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Research Design
The interpretation and significance of the variable to a very large extent depends upon
how the various dependent and independent variables are measured.
Market Price (MP)
The average price of the share derived from the financial year high and low has been
considered as market price for this study.
MP = High Price + Low Price
2
Where, High Price is Highest market price during the financial year and Low Price
Lowest market price during the financial year
Book Value Per Share (BVPS)
BVPS = Reserves + Equity Capital - Revaluation, Reserves
Number of Outstanding Shares (NOS)
Dividend Per Share (DPS)
Dividend Per Share (DPS) = Total dividend paid
Number of Outstanding Shares
Earnings Per Share (EPS)
EPS is defined as the ratio of the profit after tax of the company for any financial year
after payment of preference dividend if any to the number of shares outstanding as on the
last day of the financial year.
Earnings Per Share (EPS) = Net Profit Tax - Preference Dividend
Number of Outstanding Shares (NOS)
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.
Dividend Cover (DC)
It shows the extent to which the dividend per share is protected by the earnings of the
company
DC= EPS
DPS
Growth (GH)
Growth is measured in terms of net sales in the present study.
G = St-St-1
St-1
Where, St = Net sales in the current year and
St-1= Net sales in the immediate previous year
Price to Earnings Ratio (P/E)
Using the definition given above of EPS the P/E ratio is defined as under;
P/E Ratio= Marker Price Per Share (MP)
Earnings Per Share (EPS)
This ratio enables an investor to make an approximate calculation of the time required to
cover his investment in a company’s stock.
Dividend Yield (DY)
This is the return earned by an equity shareholder by way of dividends. Dividend Yield
(DY) is computed as:
DYj,t = DPSj,t X 100
Market pricej,t
Determinants Of Equity Share Prices: An Empirical Study
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Where, DY refers to dividend yield for company j in year t,
DPS refers to dividend per share for company j in year t, and
MP is average price of the sate derived from the financial year high and
low for company.
Summary and Conclusions
The mean values have shown that during the period 1997 to 2004, the market price was
far lower due to various uncertainties prevailing at the time in the country. The
correlation analysis shows positive significant (1%) association of only price earnings
ratio with market price. Book value, dividend cover, DPS, EPS, and growth rate are
positive but insignificant. At the same time there is negative insignificant association of
yield with market price (MP). While regression analysis depicts that book value, dividend
per share, cover and yield are insignificant with negative value. Finally it can be
concluded that from correlation and regression analysis that price earnings ratio, book
value and dividend cover were the variables which contributed most in determining the
share prices followed by dividend per share and yield.
PROBLEM STATEMENT
What are the significant determinants of equity share prices in the Indian corporate sector?
What is the empirical relationship between share prices and various explanatory variables?
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Chapter III
RESEARH
METHODOLOGY
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RESEARCH METHODOLOGY
OBJECTIVES AND SCOPE OF STUDY
1. To determine the determinants of equity share prices in Indian corporate
sector
2. To examine the empirical relationship between equity share prices and
explanatory variables such as: dividend per share, earnings per share, book
value, payout ratio, price earnings ratio, return on capital employed, growth
and market capitalization(size).
3. To study the significance of above variables in different industries as well as
for grouped data of all these industries.
SAMPLE AND PERIOD OF STUDY The data employed in the study relates to manufacturing companies listed on Bombay
Stock Exchange. A sample of 87 companies covering the following industries have been
finally selected for the purpose of the study.
Table 2
Sector No. of companies
Automobiles 12
Cements 13
Chemicals 15
Pharmaceuticals 19
Textile & cotton 14
Miscellaneous 14
Total 87
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SELECTION OF DATA While selecting the sample of the companies from six industries, the following criteria
are adopted:
1. The necessary financial data required for calculating the measures of dependent
and independent variable pertaining to all the years 2002-2006 is available.
2. The companies which did not skip dividend for any two successive years are
included in the sample.
3. The companies whose average earning per share of any three successive years is
not zero or negative is also considered.
4. Further only those companies whose price data is available are retained in the
sample size.
5. The listed shares on Bombay Stock Exchange are considered.
SOURCES OF DATA
1. The data relating to the companies was taken from the CAPITALINE
DATABASE such as earning per share, dividend payout ratio, total assets, gross
block, growth rate, return on capital employed, book value, market capitalization
2. Data regarding the share prices were taken from the website: www.bseindia.com
3. Coefficients of determination for various industries were calculated with the help
of SPSS10 software.
STATISTICAL PROCEDURE
To Analyze The Determinants Of Equity The Following Model Has Been
Used.
Linear Multiple Regression Model:
The linear multiple regression approach has been applied primarily to minimize the
problem of multicollinearity. This technique of multivariate analysis was selected
because it is the most appropriate tool evaluating the individual and combined effect of
set of independent variables on dependent variable. The significance of coefficient of
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 41-
various explanatory variables was tested at 5% by computing t-values. To determine the
proportion of explained variation in dependent variables, coefficient of multiple
determinations R2 was worked out. The overall significance of regression equation was
tested with the help of F-values.
Variables Used In Determining The Equity Share Prices: For the purpose of empirical analysis, share price has been assumed to be dependent
variable while other factors have been taken as independent variable. To explain the share
prices in the year ‘t’ data used to calculate the values of explanatory variables relate to
the year ‘t’ (t refers to the year, the share price of which is being explained). This is based
on the assumption that the dividend decisions made by a company in a given year as well
as other variables are apt to affect the market price of its share in the following year when
the data is publicly made available.
Share Price (SP)
The forces of demand and supply in the market determine the market price of the share.
SPt = (PH + PL)
2
Where PH is the highest market price, PL is the lowest market price during the year,
which relates to‘t’ period.
Book Value (BV)
It refers to the book value of total shareholders fund. It is extracted from the balance
sheet of the companies.
Book Value = LOG(Total Share Capital + Total Reserves)
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Dividend Per Share (DPS)
It refers to the actual amount of dividend (gross) declared per share. The net profit after
taxes belong to shareholders but the income that they really receive is the amount of
earnings distributed and paid as cash dividend. The dividends generally influence the
share price in positive direction as depicted by earlier studies.
Dividend Per Share = Total amount (dividend) paid to equity shareholders
Number of Equity Shares Outstanding
Earnings Per Share (EPS)
The Equity shareholders are the sole claimants to the net earnings of the corporation after
making payment of dividend to the preference shareholders. The significance of this ratio
flows from the fact that higher the earnings per share the more is the scope for a higher
rate of dividend and also of retained earnings, to build up the inner strength of the
company. Therefore, a higher EPS would increase the market price and vice versa.
It is calculated as follows:
EPS =Net Income after interest, income tax & preference dividend
Numbers of Equity Shares Outstanding
Dividend Payout Ratio (DPR)
Dividend Payout shows the percentage share of the net profits after taxes and preference
dividend paid out as dividend to equity shareholders. It can be calculated by dividing the
total dividend paid to the equity shareholders by the total profits/ earnings available for
them. Alternatively, it can be found out by dividing DPS by EPS. . This predicts direct
relation between payout ratio and the price-earning multiple. Conversely it means that
there is an inverse relation between payout ratio and share price changes.
Dividend Payout = Total Dividend to equity shareholders * 100
Total Net Profit belonging to Equity shareholders
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Or
Dividend Payout = Dividend per share * 100
Earnings pet share
Price Earning Ratio (P/E)
P ratio expresses the relationship between the market price of a company’s share and its
earnings per share. It indicates the extent to which the earnings of each share are covered
by its price. The ratio helps an investor to make an approximate calculation of the time
required to recover his investment in a company’s share. The price ratio has a positive
relationship with market price. It was calculated as follows:
P/E = Market price per share
Earnings per share
Return on Capital Employed (ROCE)
The return on investment indicates the efficiency with which a company utilizes funds
invested in it. This ratio reveals how well the resources of a firm are being used, higher
the ratio better are the results. The inter comparison of this ratio determines whether the
investments are attractive or not as the investor would like to invest only where the return
is higher. It generally has positive relationship with marker price of equity share. It is
computed as follows
Total Capital Employed = Profit after tax, plus interest * 100
Total Capital Employed
Size (S)
The size of the firm if captured through total market capitalization or total assets. It is
expected to influence the share prices positively as large firms are better diversified than
small ones and thus are less risky. For studying the influence of size on equity share
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price, size may be measured in terms of total assets, number of shares outstanding, etc. In
the present study gross block is taken to measure the size of the company.
Sales Growth(G) Growth is measured in terms of net sales in the present study.
G = St-St-1
St-1
Where, St = Net Sales of the current year
St-1 = Net Sales of the previous year
In the absence of profits, many analysts instead focus on sales growth as a measure of the
future growth potential of such companies, and this is reflected in the sales-to-stock price
ratio
LIMITATIONS OF THE STUDY Some limitations of the study are.
1. Time constraint and availability of the data.
2. Study covers five sectors and rest of them is taken under miscellaneous
category.
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CHAPTER IV
ANALYSIS AND INTERPRETATION
OF DATA
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DATA ANALYSIS AND INTERPRETATION
To determine the equity share prices the explanatory variables namely, dividend per
share, earnings per share, dividend payout ratio, return on capital employed, price earning
ratio, book value, growth and size these variables are treated as independent variable.
And the market price is considered to be dependent variable. For the determinants of
equity share prices the data has been collected for four different sectors for five years
from 2002-2006.
To Analyze The Determinants Of Equity The Following Model Has Been
Used.
Correlation Analysis. Is a statistical tool we can use to describe the degree to which one variable is linearly
related to another often correlation analysis is used in conjunction with regression
analysis to measure how well the regression line explains the variation of dependent
variable, Y. correlation can also be used by itself, however, to measure the degree of
association between two variables.
Statisticians have developed two measures for describing correlations between two
variables.
Coefficient of determination( r2)
Coefficient of correlation
Regression Model : The regression analysis is concerned with the study of dependence of one variable, the
dependent variable on one or more other variables, the explanatory variables, with a view
to estimating and/or predicting the population mean or average value of former in terms
of the known or fixed ( in repeated sampling) values of the latter.
The linear multiple regression approach has been selected to measure the
combined effects of explanatory variables on dependent variable. The general form of
multiple regression estimating equation is:
Determinants Of Equity Share Prices: An Empirical Study
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Y = α + B1X1 + B2 X2…….. + BnXn
Where, Y = Dependent variable,
X1,X2,X3, =Independent Variables,
α =Regression Constant, and
B1, B2,. Bn =Regression Coefficients of independent variables.
Multiple Regression Analysis The principle advantage of multiple regression is that it allows us to use more of
information available to us to estimate dependent variable. Some times the correlation
between two variables may be insufficient to determine a reliable estimating equation.
The linear multiple regression approach has been applied to minimize the problem of
multicollinearity. This technique is the most appropriate tool evaluating the individual
and combined effect of set of independent variables on dependent variable
Multiple regression and correlation analysis involve a three step process:
Describe the Multiple regression equation
Examine Multiple regression standard error of estimate
Use Multiple correlation analysis to determine how well the regression
equation describes the observed data.
The linear multiple regression approach has been applied primarily to minimize
the problem of multicollinearity. This technique of multivariate analysis was selected
because it is the most appropriate tool evaluating the individual and combined effect of
set of independent variables on dependent variable
The significance of coefficient of various explanatory variables was tested at by
computing ‘t-values’. Also with a view to account for loss of degree of freedom resulting
from inclusion of additional variables, the Adjusted R2 was computed. The ‘F’ value was
also computed to test the significance of the R2 with ‘F’ distribution at 1 and 5%
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 48-
significance level. The overall significance of regression equation was tested with the
help of F-values
Testing the over all significant of multiple regression.
1. R2 and adjusted R2 An important property of R2 is that it is a non decreasing function of the number of
explanatory variables or regressors present in the model: as the number of regressors
increases, R2 almost invariably increases and never decreases.
R2 = ESS Or R2 = 1 - RSS
TSS TSS
Where,
RSS is Residual Sum of Squares
TSS is Total Sum of Squares
ESS is Explained Sum of Squares
2. F-Test An F-test is any statistical test in which the test statistic has an F-distribution if
the null hypothesis is true. A great variety of hypotheses in applied statistics are tested by
F-tests. The hypothesis is that the means of multiple normally distributed populations, all
having the same standard deviation, are equal. This is perhaps the most well-known of
hypotheses tested by means of an F-test, and the simplest problem in the analysis of
variance (ANOVA).
The F-distribution is formed by the ratio of two independent chi-square variables
divided by their respective degrees of freedom. Since F is formed by chi-square, many of
the chi-square properties carry over to the F distribution.
• The F-values are all non-negative
• The distribution is non-symmetric
• The mean is approximately 1
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 49-
• There are two independent degrees of freedom, one for the numerator,
and one for the denominator.
• There are many different F distributions, one for each pair of degrees of
freedom.
NOTE: It is found that there is a high correlation between size (gross block) and market capitalization at 5% level of significance. To avoid the problem of multicollinearity both the variables are excluded from the research for the further analysis
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 50-
CORRELATION MATRIX: YEAR 2002 Correlations
1 -.072 -.008 .083 -.096 -.009 .130.505 .942 .447 .379 .937 .230
87 87 87 87 87 87 87-.072 1 .438** -.098 .038 .197 .225*.505 .000 .364 .729 .068 .036
87 87 87 87 87 87 87-.008 .438** 1 .097 .072 .506** .455**.942 .000 .373 .508 .000 .000
87 87 87 87 87 87 87.083 -.098 .097 1 -.005 .243* .179.447 .364 .373 .962 .023 .096
87 87 87 87 87 87 87-.096 .038 .072 -.005 1 .063 -.018.379 .729 .508 .962 .564 .872
87 87 87 87 87 87 87-.009 .197 .506** .243* .063 1 .062.937 .068 .000 .023 .564 .570
87 87 87 87 87 87 87.130 .225* .455** .179 -.018 .062 1.230 .036 .000 .096 .872 .570
87 87 87 87 87 87 87
Pearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookval
payout eps dividend peratio growth roce bookval
Correlation is significant at the 0.01 level (2-tailed).**.
Correlation is significant at the 0.05 level (2-tailed).*.
Interpretation: There is a significant correlation between Dividend & ROCE, Dividend & Book
Value and Dividend & EPS at 1% level of significance. Excluding that no other variables
are correlated. There would not be any problem of multicollinearity because of linear
multiple regression model being used.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 51-
REGRESSION RESULTS YEAR 2002
Model Summary
.830a .689 .662 77.61144
.830b .689 .666 77.15247
.829c .687 .668 76.86744
Model123
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), bookval, growth, roce, payout,peratio, eps, dividend
a.
Predictors: (Constant), bookval, roce, payout, peratio,eps, dividend
b.
Predictors: (Constant), bookval, roce, peratio, eps,dividend
c.
ANOVAd
1055609 7 150801.265 25.035 .000a
475859.3 79 6023.5351531468 861055268 6 175877.971 29.547 .000b
476200.3 80 5952.5041531468 861052871 5 210574.255 35.639 .000c
478596.9 81 5908.6031531468 86
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), bookval, growth, roce, payout, peratio, eps, dividenda.
Predictors: (Constant), bookval, roce, payout, peratio, eps, dividendb.
Predictors: (Constant), bookval, roce, peratio, eps, dividendc.
Dependent Variable: avgpriced.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 52-
Coefficientsa
-144.097 33.847 -4.257 .000-.067 .110 -.039 -.607 .545.908 .250 .258 3.638 .000.415 .175 .212 2.374 .020
4.841 .854 .381 5.668 .000.060 .251 .015 .238 .813
2.504 .766 .253 3.269 .00254.084 15.216 .266 3.555 .001
-143.365 33.507 -4.279 .000-.069 .109 -.040 -.635 .528.908 .248 .258 3.660 .000.417 .174 .214 2.405 .018
4.841 .849 .381 5.701 .0002.508 .761 .253 3.294 .001
53.955 15.116 .265 3.569 .001-142.747 33.369 -4.278 .000
.920 .247 .262 3.730 .000
.422 .173 .216 2.444 .0174.817 .845 .379 5.700 .0002.502 .759 .253 3.298 .001
52.593 14.908 .259 3.528 .001
(Constant)payoutepsdividendperatiogrowthrocebookval(Constant)payoutepsdividendperatiorocebookval(Constant)epsdividendperatiorocebookval
Model1
2
3
B Std. Error
UnstandardizedCoefficients
Beta
StandardizedCoefficients
t Sig.
Dependent Variable: avgpricea.
Interpretation (2002): Dividend, EPS, P/E Ratio, ROCE, and Bookvalue the most important determinants of
share price for the year 2002 with T- value being 3.3730 & 2.444, 5.700, 3.298 and 3.528
respectively. When backward model is used and when the irrelevant variables are
removed one after the other based on there significance level the t-value of Dividend,
EPS, P/E Ratio, ROCE, and Bookvalue increases to 3.3730 & 2.444, 5.700, 3.298 and
3.528 respectively . The coefficient of multiple determination, (R2), obtained from the
equations indicate that variables included in the equation could explain 66.2% of the
dependent variable share price. The computed F-value 25.035 is found to be significant at
5% level. The variables Growth and Payout are found to be insignificant.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 53-
CORRELATION MATRIX: YEAR 2003
Correlations
1 -.052 .216* .575** .052 .041 .145.634 .045 .000 .634 .708 .180
87 87 87 87 87 87 87-.052 1 .451** -.104 .041 .223* .220*.634 .000 .339 .708 .037 .041
87 87 87 87 87 87 87.216* .451** 1 -.035 .062 .289** .261*.045 .000 .747 .570 .007 .015
87 87 87 87 87 87 87.575** -.104 -.035 1 .090 -.040 .095.000 .339 .747 .405 .710 .382
87 87 87 87 87 87 87.052 .041 .062 .090 1 .017 .040.634 .708 .570 .405 .877 .711
87 87 87 87 87 87 87.041 .223* .289** -.040 .017 1 .193.708 .037 .007 .710 .877 .074
87 87 87 87 87 87 87.145 .220* .261* .095 .040 .193 1.180 .041 .015 .382 .711 .074
87 87 87 87 87 87 87
Pearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookvalu
payout eps dividend peratio growth roce bookvalu
Correlation is significant at the 0.05 level (2-tailed).*.
Correlation is significant at the 0.01 level (2-tailed).**.
Interpretation: There is a significant correlation between Payout & PE ratio, Dividend & EPS
and Dividend & ROCE at 1% level of significance. Excluding that no other variables are
correlated. Therefore there would not be any problem of multicollinearity because of
linear multiple regression model being used.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 54-
REGRESSION RESULTS YEAR 2003
Model Summary
.711a .505 .461 121.9857
.710b .504 .467 121.2735
.709c .502 .472 120.7522
.707d .500 .475 120.3311
Model1234
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, GROWTH,PERATIO, ROCE, EPS, DIVIDEND, PAYOUT
a.
Predictors: (Constant), BOOKVAL, GROWTH,PERATIO, ROCE, EPS, DIVIDEND
b.
Predictors: (Constant), BOOKVAL, GROWTH, ROCE,EPS, DIVIDEND
c.
Predictors: (Constant), BOOKVAL, GROWTH, ROCE,EPS
d.
ANOVAe
1198432 7 171204.635 11.505 .000a
1175560 79 14880.5042373992 861197411 6 199568.440 13.569 .000b
1176582 80 14707.2702373992 861192923 5 238584.679 16.363 .000c
1181069 81 14581.0972373992 861186666 4 296666.567 20.489 .000d
1187326 82 14479.5852373992 86
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, GROWTH, PERATIO, ROCE, EPS, DIVIDEND,PAYOUT
a.
Predictors: (Constant), BOOKVAL, GROWTH, PERATIO, ROCE, EPS, DIVIDENDb.
Predictors: (Constant), BOOKVAL, GROWTH, ROCE, EPS, DIVIDENDc.
Predictors: (Constant), BOOKVAL, GROWTH, ROCE, EPSd.
Dependent Variable: AVGPRICEe.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 55-
Coefficients a
-180.143 50.672 -3.555 .001-.188 .716 -.027 -.262 .794.574 .401 .131 1.431 .156
4.082E-02 .058 .068 .701 .486.243 .405 .059 .599 .551
-1.062 .526 -.161 -2.021 .0474.284 .921 .390 4.654 .000
106.393 21.558 .414 4.935 .000-183.866 48.355 -3.802 .000
.589 .394 .134 1.494 .1393.625E-02 .055 .060 .656 .514
.180 .327 .044 .552 .582-1.060 .522 -.161 -2.028 .0464.284 .915 .390 4.680 .000
106.074 21.398 .413 4.957 .000-183.996 48.147 -3.822 .000
.565 .390 .129 1.448 .1513.605E-02 .055 .060 .655 .514
-1.033 .518 -.157 -1.994 .0494.266 .911 .388 4.684 .000
107.523 21.145 .419 5.085 .000-190.779 46.856 -4.072 .000
.664 .358 .151 1.855 .067-1.018 .516 -.154 -1.975 .0524.381 .890 .399 4.920 .000
109.699 20.810 .427 5.271 .000
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)EPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)EPSDIVIDENDGROWTHROCEBOOKVAL(Constant)EPSGROWTHROCEBOOKVAL
Model1
2
3
4
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (2003): Book value and ROCE are the most important determinants of share price for the year
2003 with positive t- values. When backward model is applied, variables are removed
one after the other based on there significance level the t-value of Book value, ROCE,
EPS increases to 5.271 & 4.920 respectively. The coefficient of multiple determination,
(R2), obtained from the equations indicate that variables included in the equation could
explain 46.1% of the dependent variable share price. The computed F-value 11.505 is
found to be significant at 5% level. The variables Growth and Payout are found to be
insignificant with negative values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 56-
CORRELATION MATRIX: YEAR 2004 Correlations
1 -.050 -.026 .056 -.023 -.067 -.120.647 .814 .608 .830 .538 .269
87 87 87 87 87 87 87-.050 1 .232* -.096 .081 .017 .020.647 .030 .377 .456 .876 .851
87 87 87 87 87 87 87-.026 .232* 1 .108 -.153 .309** .496**.814 .030 .321 .156 .004 .000
87 87 87 87 87 87 87.056 -.096 .108 1 -.057 .179 .146.608 .377 .321 .603 .097 .177
87 87 87 87 87 87 87-.023 .081 -.153 -.057 1 .081 -.177.830 .456 .156 .603 .457 .100
87 87 87 87 87 87 87-.067 .017 .309** .179 .081 1 .217*.538 .876 .004 .097 .457 .044
87 87 87 87 87 87 87-.120 .020 .496** .146 -.177 .217* 1.269 .851 .000 .177 .100 .044
87 87 87 87 87 87 87
Pearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookval
payout eps dividend peratio growth roce bookval
Correlation is significant at the 0.05 level (2-tailed).*.
Correlation is significant at the 0.01 level (2-tailed).**.
Interpretation: There is a significant correlation between Dividend & EPS and Dividend & Book
value at 1% level of significance. Excluding that no other variables are correlated.
Therefore there would not be any problem of multicollinearity because of linear multiple
regression model being used..
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 57-
REGRESSION RESULTS YEAR 2004 Model Summary
.689a .475 .429 196.6439
.689b .475 .436 195.4157
.689c .475 .443 194.2152
.688d .474 .448 193.3043
.686e .470 .451 192.7421
Model12345
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, EPS, PAYOUT,PERATIO, GROWTH, ROCE, DIVIDEND
a.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT,PERATIO, ROCE, DIVIDEND
b.
Predictors: (Constant), BOOKVAL, EPS, PERATIO,ROCE, DIVIDEND
c.
Predictors: (Constant), BOOKVAL, PERATIO, ROCE,DIVIDEND
d.
Predictors: (Constant), BOOKVAL, PERATIO, ROCEe.
ANOVAf
2766912 7 395273.152 10.222 .000a
3054837 79 38668.8255821749 862766765 6 461127.520 12.075 .000b
3054984 80 38187.3015821749 862766465 5 553292.983 14.669 .000c
3055284 81 37719.5595821749 862757691 4 689422.714 18.450 .000d
3064058 82 37366.5665821749 862738340 3 912779.992 24.570 .000e
3083409 83 37149.5095821749 86
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
5
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, GROWTH, ROCE,DIVIDEND
a.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, ROCE, DIVIDENDb.
Predictors: (Constant), BOOKVAL, EPS, PERATIO, ROCE, DIVIDENDc.
Predictors: (Constant), BOOKVAL, PERATIO, ROCE, DIVIDENDd.
Predictors: (Constant), BOOKVAL, PERATIO, ROCEe.
Dependent Variable: AVGPRICEf.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 58-
Coefficients a
-323.455 92.239 -3.507 .001-2.70E-02 .302 -.007 -.090 .9295.805E-02 .122 .041 .475 .636
.141 .256 .056 .549 .5853.836 1.512 .214 2.538 .013
-7.36E-02 1.195 -.005 -.062 .9515.640 1.378 .361 4.093 .000
157.395 39.859 .381 3.949 .000-325.327 86.554 -3.759 .000
-2.66E-02 .300 -.007 -.089 .9305.721E-02 .121 .040 .474 .637
.143 .252 .056 .566 .5733.840 1.501 .214 2.558 .0125.627 1.353 .360 4.160 .000
157.681 39.342 .382 4.008 .000-327.224 83.353 -3.926 .000
5.779E-02 .120 .040 .482 .631.141 .250 .056 .565 .574
3.830 1.488 .213 2.574 .0125.635 1.341 .361 4.201 .000
158.140 38.760 .383 4.080 .000-321.706 82.177 -3.915 .000
.173 .240 .068 .720 .4743.752 1.472 .209 2.549 .0135.612 1.334 .359 4.206 .000
156.306 38.392 .379 4.071 .000-341.317 77.301 -4.415 .000
3.757 1.468 .209 2.560 .0125.837 1.293 .374 4.514 .000
169.009 33.994 .409 4.972 .000
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)PAYOUTEPSDIVIDENDPERATIOROCEBOOKVAL(Constant)EPSDIVIDENDPERATIOROCEBOOKVAL(Constant)DIVIDENDPERATIOROCEBOOKVAL(Constant)PERATIOROCEBOOKVAL
Model1
2
3
4
5
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (2004):
Book value P/E ratio and ROCE are the highly significant determinants for year 2004
with positive t- values. . The coefficient of multiple determination, (R2), obtained from
the equations indicate that variables included in the equation could explain 42.9 % of the
dependent variable share price. The computed F-value 10.222 is found to be significant at
5% level. The variables Growth and Payout are found to be insignificant with negative t-
values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 59-
CORRELATION MATRIX: YEAR 2005
Correlations
1 -.165 .088 .154 .149 .133 -.028.126 .420 .154 .167 .218 .799
87 87 87 87 87 87 87-.165 1 .486** -.134 .132 .283** .574**.126 .000 .218 .224 .008 .000
87 87 87 87 87 87 87.088 .486** 1 -.045 .080 .273* .467**.420 .000 .680 .461 .011 .000
87 87 87 87 87 87 87.154 -.134 -.045 1 .109 -.014 -.130.154 .218 .680 .317 .901 .232
87 87 87 87 87 87 87.149 .132 .080 .109 1 -.038 .022.167 .224 .461 .317 .725 .840
87 87 87 87 87 87 87.133 .283** .273* -.014 -.038 1 .231*.218 .008 .011 .901 .725 .031
87 87 87 87 87 87 87-.028 .574** .467** -.130 .022 .231* 1.799 .000 .000 .232 .840 .031
87 87 87 87 87 87 87
Pearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookval
payout eps dividend peratio growth roce bookval
Correlation is significant at the 0.01 level (2-tailed).**.
Correlation is significant at the 0.05 level (2-tailed).*.
Interpretation: There is a significant correlation between Dividend & EPS Dividend & Book value and
EPS & Book value at 1% level of significance. Excluding that no other variables are
correlated. There would not be any problem of multicollinearity because of linear
multiple regression model being used.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 60-
REGRESSION RESULTS YEAR 2005
Model Summary
.709a .502 .458 247.2454
.705b .498 .460 246.8029
.700c .491 .459 246.9405
Model123
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVALU, GROWTH,PAYOUT, PERATIO, ROCE, DIVIDEND, EPS
a.
Predictors: (Constant), BOOKVALU, GROWTH,PERATIO, ROCE, DIVIDEND, EPS
b.
Predictors: (Constant), BOOKVALU, GROWTH,PERATIO, ROCE, EPS
c.
ANOVAd
4868595 7 695513.565 11.378 .000a
4829294 79 61130.3069697889 864824957 6 804159.449 13.202 .000b
4872932 80 60911.6569697889 864758541 5 951708.159 15.607 .000c
4939348 81 60979.6099697889 86
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVALU, GROWTH, PAYOUT, PERATIO, ROCE,DIVIDEND, EPS
a.
Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, DIVIDEND, EPSb.
Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, EPSc.
Dependent Variable: AVGPRICEd.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 61-
Coefficientsa
-225.169 117.251 -1.920 .058.890 1.054 .072 .845 .401
5.077 1.455 .377 3.489 .001.167 .185 .087 .905 .368
1.085 .622 .142 1.745 .085-2.292 1.111 -.170 -2.063 .0424.736 1.656 .245 2.860 .005
120.815 53.909 .227 2.241 .028-207.406 115.144 -1.801 .075
4.748 1.400 .353 3.393 .001.190 .182 .099 1.044 .300
1.144 .617 .150 1.855 .067-2.122 1.091 -.158 -1.945 .0554.985 1.627 .258 3.065 .003
123.028 53.749 .231 2.289 .025-237.576 111.522 -2.130 .036
5.138 1.350 .382 3.807 .0001.165 .617 .153 1.888 .063
-2.072 1.090 -.154 -1.900 .0615.232 1.610 .271 3.250 .002
137.412 51.982 .258 2.643 .010
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVALU(Constant)EPSDIVIDENDPERATIOGROWTHROCEBOOKVALU(Constant)EPSPERATIOGROWTHROCEBOOKVALU
Model1
2
3
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (2005): Book value, EPS and ROCE are the highly significant determinants for year 2005 with
positive t- values. . The coefficient of multiple determination, (R2), obtained from the
equations indicate that variables included in the equation could explain 45.8 % of the
dependent variable share price. The computed F-value 11.378 is found to be significant at
5% level. The variables Dividend and Payout are found to be insignificant with negative
t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 62-
CORRELATION MATRIX: YEAR 2006
Correlations
1 -.217* .078 .291** -.208 .052 -.002.044 .471 .006 .053 .633 .984
87 87 87 87 87 87 87-.217* 1 .540** .063 .036 .346** .513**.044 .000 .564 .737 .001 .000
87 87 87 87 87 87 87.078 .540** 1 .030 -.026 .358** .512**.471 .000 .781 .810 .001 .000
87 87 87 87 87 87 87.291** .063 .030 1 .237* -.014 .099.006 .564 .781 .027 .898 .360
87 87 87 87 87 87 87-.208 .036 -.026 .237* 1 .097 .148.053 .737 .810 .027 .373 .171
87 87 87 87 87 87 87.052 .346** .358** -.014 .097 1 .274*.633 .001 .001 .898 .373 .010
87 87 87 87 87 87 87-.002 .513** .512** .099 .148 .274* 1.984 .000 .000 .360 .171 .010
87 87 87 87 87 87 87
Pearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)N
payou
epss
dividend
peratio
growth
roce
bookval
payou epss dividend peratio growth roce bookval
Correlation is significant at the 0.05 level (2-tailed).*.
Correlation is significant at the 0.01 level (2-tailed).**.
Interpretation: There is a significant correlation between Payout & EPS & Book value, EPS and
Dividend & Book value at 1% level of significance. Excluding that no other variables are
correlated. There would not be any problem of multicollinearity because of linear
multiple regression model being used.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 63-
REGRESSION RESULTS YEAR 2006
Model Summary
.877a .770 .749 289.0781
.877b .770 .752 287.2748
.877c .769 .755 285.7508
.877d .768 .757 284.5056
.874e .765 .756 285.0996
Model12345
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, PAYOU, GROWTH,ROCE, PERATIO, DIVIDEND, EPSS
a.
Predictors: (Constant), BOOKVAL, PAYOU, GROWTH,ROCE, PERATIO, EPSS
b.
Predictors: (Constant), BOOKVAL, PAYOU, GROWTH,PERATIO, EPSS
c.
Predictors: (Constant), BOOKVAL, PAYOU, PERATIO,EPSS
d.
Predictors: (Constant), PAYOU, PERATIO, EPSSe.
ANOVAf
22046977 7 3149568.089 37.690 .000a
6601725 79 83566.14228648702 8622046556 6 3674426.071 44.524 .000b
6602145 80 82526.81828648702 8622034765 5 4406952.976 53.971 .000c
6613937 81 81653.54328648702 8622011342 4 5502835.513 67.984 .000d
6637360 82 80943.41228648702 8621902315 3 7300771.605 89.821 .000e
6746387 83 81281.77128648702 86
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
5
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, PAYOU, GROWTH, ROCE, PERATIO, DIVIDEND,EPSS
a.
Predictors: (Constant), BOOKVAL, PAYOU, GROWTH, ROCE, PERATIO, EPSSb.
Predictors: (Constant), BOOKVAL, PAYOU, GROWTH, PERATIO, EPSSc.
Predictors: (Constant), BOOKVAL, PAYOU, PERATIO, EPSSd.
Predictors: (Constant), PAYOU, PERATIO, EPSSe.
Dependent Variable: AVGPRICEf.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 64-
Coefficients a
-402.480 134.069 -3.002 .0042.633 1.450 .116 1.816 .073
19.879 1.860 .793 10.690 .000-2.15E-02 .303 -.005 -.071 .944
5.799 1.518 .232 3.821 .000.656 1.410 .028 .465 .643.816 2.135 .023 .382 .703
58.956 60.819 .066 .969 .335-399.589 126.923 -3.148 .002
2.615 1.418 .115 1.844 .06919.831 1.721 .791 11.523 .000
5.806 1.505 .233 3.857 .000.662 1.399 .028 .473 .637.791 2.091 .022 .378 .706
57.651 57.606 .064 1.001 .320-394.659 125.581 -3.143 .002
2.714 1.387 .120 1.957 .05420.025 1.635 .798 12.251 .000
5.731 1.484 .230 3.862 .000.738 1.377 .031 .536 .594
59.418 57.111 .066 1.040 .301-387.398 124.303 -3.117 .003
2.475 1.307 .109 1.894 .06219.901 1.611 .793 12.352 .000
5.985 1.400 .240 4.275 .00064.918 55.936 .073 1.161 .249
-263.512 63.827 -4.129 .0002.644 1.302 .117 2.031 .045
20.870 1.381 .832 15.113 .0006.050 1.402 .243 4.317 .000
(Constant)PAYOUEPSSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)PAYOUEPSSPERATIOGROWTHROCEBOOKVAL(Constant)PAYOUEPSSPERATIOGROWTHBOOKVAL(Constant)PAYOUEPSSPERATIOBOOKVAL(Constant)PAYOUEPSSPERATIO
Model1
2
3
4
5
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (2006):
Payout, Payout and P/E ratio are the highly significant determinants for year 2006 with
positive t- values. . The coefficient of multiple determination, (R2), obtained from the
equations indicate that variables included in the equation could explain 74.9 % of the
dependent variable share price. The computed F-value 37.690 is found to be significant at
5% level. The variables Dividend and Payout are found to be insignificant with negative
t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 65-
INDUSTRY –WISE CORRELATIONS
CORRELATION MATRIX: AUTOMOBILE
Correlations
1 -.379** -.117 .154 -.166 -.326* -.011.003 .375 .241 .205 .011 .936
60 60 60 60 60 60 60-.379** 1 .900** .154 .239 .233 .626**.003 .000 .240 .066 .073 .000
60 60 60 60 60 60 60-.117 .900** 1 .249 .256* .173 .715**.375 .000 .055 .049 .187 .000
60 60 60 60 60 60 60.154 .154 .249 1 .174 .042 .015.241 .240 .055 .183 .748 .908
60 60 60 60 60 60 60-.166 .239 .256* .174 1 .331** .120.205 .066 .049 .183 .010 .361
60 60 60 60 60 60 60-.326* .233 .173 .042 .331** 1 -.091.011 .073 .187 .748 .010 .491
60 60 60 60 60 60 60-.011 .626** .715** .015 .120 -.091 1.936 .000 .000 .908 .361 .491
60 60 60 60 60 60 60
Pearson CorrelatSig. (2-tailed)NPearson CorrelatSig. (2-tailed)NPearson CorrelatSig. (2-tailed)NPearson CorrelatSig. (2-tailed)NPearson CorrelatSig. (2-tailed)NPearson CorrelatSig. (2-tailed)NPearson CorrelatSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookval
payout eps dividend peratio growth roce bookval
Correlation is significant at the 0.01 level (2-tailed).**.
Correlation is significant at the 0.05 level (2-tailed).*.
Interpretation: There is a significant correlation between Payout & EPS and EPS, Dividend & Book
value at 1% level of significance. Excluding that no other variables are correlated. There
would not be any problem of multicollinearity because of linear multiple regression
model being used.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 66-
REGRESSION RESULTS AUTOMOBILE INDUSTRY
Model Summary
.953a .909 .897 128.1784
.953b .908 .898 127.2799
.952c .906 .898 127.4936
Model123
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO,GROWTH, ROCE, EPS, DIVIDEND
a.
Predictors: (Constant), BOOKVAL, PERATIO,GROWTH, ROCE, EPS, DIVIDEND
b.
Predictors: (Constant), BOOKVAL, PERATIO, ROCE,EPS, DIVIDEND
c.
ANOVAd
8527504 7 1218214.873 74.147 .000a
854344.1 52 16429.6949381848 598523239 6 1420539.914 87.687 .000b
858608.7 53 16200.1659381848 598504099 5 1700819.722 104.636 .000c
877749.6 54 16254.6229381848 59
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO, GROWTH, ROCE, EPS,DIVIDEND
a.
Predictors: (Constant), BOOKVAL, PERATIO, GROWTH, ROCE, EPS, DIVIDENDb.
Predictors: (Constant), BOOKVAL, PERATIO, ROCE, EPS, DIVIDENDc.
Dependent Variable: AVGPRICEd.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 67-
Coefficientsa
57.184 101.578 .563 .576.727 1.427 .029 .509 .613
6.870 2.533 .338 2.712 .0094.835 .785 .798 6.162 .0004.873 1.895 .119 2.572 .013
-1.197 1.178 -.047 -1.016 .314-2.428 1.472 -.080 -1.649 .105
-132.561 33.577 -.258 -3.948 .00089.393 78.949 1.132 .263
6.089 2.003 .299 3.040 .0045.021 .690 .829 7.280 .0005.012 1.862 .122 2.692 .009
-1.264 1.163 -.049 -1.087 .282-2.579 1.431 -.085 -1.802 .077
-131.752 33.304 -.256 -3.956 .00090.204 79.078 1.141 .259
6.115 2.006 .300 3.048 .0044.973 .689 .821 7.213 .0004.759 1.850 .116 2.572 .013
-3.041 1.369 -.100 -2.221 .031-132.957 33.342 -.259 -3.988 .000
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)EPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)EPSDIVIDENDPERATIOROCEBOOKVAL
Model1
2
3
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (AUTOMOBILE INDUSTRY):
EPS, Dividend and P/E ratio are the highly significant determinants for auto industry with
positive t- values. . The coefficient of multiple determination, (R2), obtained from the
equations indicate that variables included in the equation could explain 87.9 % of the
dependent variable share price. The computed F-value 74.147 is found to be significant at
5% level. The variables Dividend and Payout are found to be insignificant with negative
t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 68-
CORRELATION MATRIX: CEMENTS
Correlations
1 -.130 -.050 .201 -.162 .048 .089.302 .695 .109 .197 .703 .482
65 65 65 65 65 65 65-.130 1 .394** -.111 -.009 .153 .242.302 .001 .378 .944 .224 .052
65 65 65 65 65 65 65-.050 .394** 1 -.002 .196 .498** .459**.695 .001 .990 .118 .000 .000
65 65 65 65 65 65 65.201 -.111 -.002 1 .196 -.081 .134.109 .378 .990 .117 .522 .286
65 65 65 65 65 65 65-.162 -.009 .196 .196 1 .504** .286*.197 .944 .118 .117 .000 .021
65 65 65 65 65 65 65.048 .153 .498** -.081 .504** 1 .381**.703 .224 .000 .522 .000 .002
65 65 65 65 65 65 65.089 .242 .459** .134 .286* .381** 1.482 .052 .000 .286 .021 .002
65 65 65 65 65 65 65
Pearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookvalu
payout eps dividend peratio growth roce bookvalu
Correlation is significant at the 0.01 level (2-tailed).**.
Correlation is significant at the 0.05 level (2-tailed).*.
Interpretation: There is a significant correlation between Dividend & EPS, Dividend & Book value and
ROCE & Dividend at 1% level of significance. Excluding that no other variables are
correlated. There would not be any problem of multicollinearity because of linear
multiple regression model is being used for the further analysis.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 69-
REGRESSION RESULTS CEMENTS INDUSTRY
Model Summary
.593a .351 .271 362.1219
.592b .351 .284 359.0226
.592c .350 .295 356.1585
.588d .345 .302 354.4937
.585e .342 .310 352.4704
Model12345
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO,EPS, GROWTH, DIVIDEND, ROCE
a.
Predictors: (Constant), BOOKVAL, PERATIO, EPS,GROWTH, DIVIDEND, ROCE
b.
Predictors: (Constant), PERATIO, EPS, GROWTH,DIVIDEND, ROCE
c.
Predictors: (Constant), PERATIO, EPS, DIVIDEND,ROCE
d.
Predictors: (Constant), PERATIO, EPS, DIVIDENDe.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 70-
ANOVAf
4044862 7 577837.418 4.407 .001a
7474541 57 131132.29711519403 644043365 6 673894.250 5.228 .000b
7476037 58 128897.19611519403 644035321 5 807064.112 6.362 .000c
7484082 59 126848.85211519403 643979457 4 994864.168 7.917 .000d
7539946 60 125665.77011519403 643941043 3 1313681.002 10.574 .000e
7578360 61 124235.40711519403 64
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
5
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO, EPS, GROWTH, DIVIDEND,ROCE
a.
Predictors: (Constant), BOOKVAL, PERATIO, EPS, GROWTH, DIVIDEND, ROCEb.
Predictors: (Constant), PERATIO, EPS, GROWTH, DIVIDEND, ROCEc.
Predictors: (Constant), PERATIO, EPS, DIVIDEND, ROCEd.
Predictors: (Constant), PERATIO, EPS, DIVIDENDe.
Dependent Variable: AVGPRICEf.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 71-
Coefficientsa
-31.633 192.675 -.164 .870-6.52E-02 .610 -.012 -.107 .915
4.269 1.589 .320 2.686 .0093.148 1.168 .377 2.694 .0091.449 .975 .175 1.486 .1431.316 2.379 .076 .553 .582
-7.431 9.558 -.116 -.778 .44023.974 92.356 .033 .260 .796
-30.329 190.642 -.159 .8744.291 1.563 .322 2.746 .0083.162 1.151 .379 2.747 .0081.421 .933 .172 1.524 .1331.397 2.234 .081 .625 .534
-7.665 9.224 -.120 -.831 .40922.677 90.770 .031 .250 .804
8.790 107.883 .081 .9354.337 1.540 .325 2.817 .0073.243 1.095 .389 2.963 .0041.457 .915 .176 1.593 .1171.461 2.202 .084 .664 .510
-7.346 9.062 -.115 -.811 .421-9.068 103.985 -.087 .9314.290 1.531 .322 2.802 .0073.196 1.087 .383 2.939 .0051.622 .876 .196 1.852 .069
-4.300 7.777 -.067 -.553 .582-52.751 67.219 -.785 .436
4.346 1.519 .326 2.862 .0062.903 .944 .348 3.074 .0031.671 .866 .202 1.928 .058
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)EPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)EPSDIVIDENDPERATIOGROWTHROCE(Constant)EPSDIVIDENDPERATIOROCE(Constant)EPSDIVIDENDPERATIO
Model1
2
3
4
5
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (CEMENT INDUSTRY): EPS and Dividend are the highly significant determinants for cement industry with positive t- values. . The coefficient of multiple determination, (R2), obtained from the equations indicate that variables included in the equation could explain 27.1 % of the dependent variable share price. The computed F-value 4.407 is found to be significant at 5% level. The variables Dividend and Payout are found to be insignificant with negative t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 72-
CORRELATION MATRIX: CHEMICALS
Correlations
1 -.108 .336** .223 -.033 -.044 .068.357 .003 .055 .781 .709 .565
75 75 75 75 75 75 75-.108 1 .484** -.093 .009 .085 -.007.357 .000 .426 .939 .466 .954
75 75 75 75 75 75 75.336** .484** 1 -.134 -.133 .494** .399**.003 .000 .250 .257 .000 .000
75 75 75 75 75 75 75.223 -.093 -.134 1 .166 -.224 -.179.055 .426 .250 .153 .053 .124
75 75 75 75 75 75 75-.033 .009 -.133 .166 1 -.001 -.152.781 .939 .257 .153 .995 .192
75 75 75 75 75 75 75-.044 .085 .494** -.224 -.001 1 .501**.709 .466 .000 .053 .995 .000
75 75 75 75 75 75 75.068 -.007 .399** -.179 -.152 .501** 1.565 .954 .000 .124 .192 .000
75 75 75 75 75 75 75
Pearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookvalu
payout eps dividend peratio growth roce bookvalu
Correlation is significant at the 0.01 level (2-tailed).**.
Interpretation: There is a significant correlation between Dividend & EPS, Dividend & ROCE, EPS and
ROCE & Book Value at 1% level of significance. Except that no other variables are
correlated. There would not be any problem of multicollinearity because of linear
multiple regression model being used.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 73-
REGRESSION RESULTS CHEMICALS INDUSTRY
Model Summary
.450a .202 .119 105.1989
.450b .202 .132 104.4230
.447c .200 .142 103.8175
.438d .192 .145 103.6049
.430e .185 .151 103.2922
.394f .155 .132 104.4412
Model123456
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, EPS, PAYOUT,GROWTH, PERATIO, ROCE, DIVIDEND
a.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT,PERATIO, ROCE, DIVIDEND
b.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT,PERATIO, DIVIDEND
c.
Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO,DIVIDEND
d.
Predictors: (Constant), BOOKVAL, PERATIO, DIVIDENDe.
Predictors: (Constant), PERATIO, DIVIDENDf.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 74-
ANOVAg
188007.8 7 26858.257 2.427 .028a
741476.9 67 11066.819929484.7 74188001.2 6 31333.534 2.874 .015b
741483.5 68 10904.168929484.7 74185797.5 5 37159.495 3.448 .008c
743687.2 69 10778.075929484.7 74178105.7 4 44526.430 4.148 .005d
751378.9 70 10733.985929484.7 74171965.9 3 57321.975 5.373 .002e
757518.7 71 10669.278929484.7 74144111.8 2 72055.882 6.606 .002f
785372.9 72 10907.957929484.7 74
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
5
6
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT, GROWTH, PERATIO, ROCE,DIVIDEND
a.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, ROCE, DIVIDENDb.
Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, DIVIDENDc.
Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO, DIVIDENDd.
Predictors: (Constant), BOOKVAL, PERATIO, DIVIDENDe.
Predictors: (Constant), PERATIO, DIVIDENDf.
Dependent Variable: AVGPRICEg.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 75-
Coefficientsa
-26.949 79.284 -.340 .735-.556 .517 -.146 -1.077 .285
-7.25E-02 .080 -.129 -.907 .368.984 .421 .428 2.340 .022
1.679 .694 .285 2.420 .018-7.14E-03 .293 -.003 -.024 .981
-1.070 2.453 -.064 -.436 .66455.841 42.429 .175 1.316 .193
-27.236 77.827 -.350 .727-.557 .512 -.146 -1.087 .281
-7.27E-02 .079 -.130 -.920 .361.986 .413 .429 2.386 .020
1.676 .680 .284 2.464 .016-1.080 2.402 -.064 -.450 .65455.964 41.819 .175 1.338 .185
-31.599 76.771 -.412 .682-.491 .488 -.129 -1.006 .318
-6.46E-02 .076 -.115 -.845 .401.901 .365 .392 2.466 .016
1.698 .675 .288 2.518 .01450.235 39.599 .157 1.269 .209
-48.575 73.943 -.657 .513-.345 .456 -.090 -.756 .452.714 .290 .311 2.460 .016
1.679 .673 .285 2.495 .01559.812 37.864 .187 1.580 .119
-56.635 72.950 -.776 .440.634 .269 .276 2.353 .021
1.536 .644 .260 2.386 .02060.947 37.720 .191 1.616 .11156.977 19.649 2.900 .005
.801 .251 .348 3.187 .0021.393 .645 .236 2.160 .034
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)PAYOUTEPSDIVIDENDPERATIOROCEBOOKVAL(Constant)PAYOUTEPSDIVIDENDPERATIOBOOKVAL(Constant)PAYOUTDIVIDENDPERATIOBOOKVAL(Constant)DIVIDENDPERATIOBOOKVAL(Constant)DIVIDENDPERATIO
Model1
2
3
4
5
6
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (CHEMICALS INDUSTRY): Dividend and PE ratio are the significant determinants for cement industry with positive t- values. . The coefficient of multiple determination, (R2), obtained from the equations indicate that variables included in the equation could explain 11.9 % variation of the dependent variable share price. The computed F-value 6.606 is found to be significant at 5% level. The variables Growth, ROCE and EPS are found to be insignificant with negative t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 76-
CORRELATION MATRIX: PHARMACEUTICALS
Correlations
1 -.123 .275** .471** -.112 -.147 .297**.236 .007 .000 .279 .154 .003
95 95 95 95 95 95 95-.123 1 .525** .030 -.067 .608** .457**.236 .000 .775 .519 .000 .000
95 95 95 95 95 95 95.275** .525** 1 .146 -.165 .467** .660**.007 .000 .157 .111 .000 .000
95 95 95 95 95 95 95.471** .030 .146 1 .046 -.062 .194.000 .775 .157 .659 .549 .059
95 95 95 95 95 95 95-.112 -.067 -.165 .046 1 -.067 -.058.279 .519 .111 .659 .520 .578
95 95 95 95 95 95 95-.147 .608** .467** -.062 -.067 1 .167.154 .000 .000 .549 .520 .105
95 95 95 95 95 95 95.297** .457** .660** .194 -.058 .167 1.003 .000 .000 .059 .578 .105
95 95 95 95 95 95 95
Pearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookvalu
payout eps dividend peratio growth roce bookvalu
Correlation is significant at the 0.01 level (2-tailed).**.
Interpretation: There is a significant correlation between Dividend & EPS, Dividend & ROCE, EPS and
ROCE, Dividend & Book Value at 1% level of significance. Except that no other
variables are correlated. Therefore there would not be any problem of multicollinearity
because of linear multiple regression model being used.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 77-
REGRESSION RESULTS PHARMACEUTICALS INDUSTRY Model Summary
.870a .756 .737 163.0839
.870b .756 .740 162.1557
.870c .756 .743 161.2473
.867d .752 .741 161.6533
Model1234
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVALU, GROWTH, ROCE,PERATIO, PAYOUT, EPS, DIVIDEND
a.
Predictors: (Constant), BOOKVALU, ROCE, PERATIO,PAYOUT, EPS, DIVIDEND
b.
Predictors: (Constant), BOOKVALU, ROCE, PERATIO,PAYOUT, EPS
c.
Predictors: (Constant), ROCE, PERATIO, PAYOUT, EPSd.
ANOVAe
7178678 7 1025525.428 38.559 .000a
2313883 87 26596.3589492561 947178647 6 1196441.104 45.502 .000b
2313914 88 26294.4839492561 947178500 5 1435700.038 55.218 .000c
2314061 89 26000.6859492561 947140701 4 1785175.138 68.314 .000d
2351861 90 26131.7849492561 94
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVALU, GROWTH, ROCE, PERATIO, PAYOUT, EPS,DIVIDEND
a.
Predictors: (Constant), BOOKVALU, ROCE, PERATIO, PAYOUT, EPS, DIVIDENDb.
Predictors: (Constant), BOOKVALU, ROCE, PERATIO, PAYOUT, EPSc.
Predictors: (Constant), ROCE, PERATIO, PAYOUT, EPSd.
Dependent Variable: AVGPRICEe.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 78-
Coefficientsa
-198.132 94.480 -2.097 .03911.809 1.769 .452 6.676 .00013.154 1.540 .665 8.541 .000
3.046E-02 .390 .007 .078 .9385.723 1.425 .244 4.015 .000
2.965E-02 .863 .002 .034 .9732.375 1.656 .105 1.434 .155
-47.306 45.133 -.081 -1.048 .297-197.778 93.381 -2.118 .037
11.802 1.745 .452 6.762 .00013.152 1.530 .665 8.594 .000
2.872E-02 .385 .006 .075 .9415.728 1.408 .245 4.069 .0002.376 1.646 .105 1.443 .152
-47.181 44.729 -.081 -1.055 .294-201.364 79.619 -2.529 .013
11.836 1.676 .453 7.060 .00013.167 1.509 .666 8.725 .000
5.724 1.399 .245 4.092 .0002.423 1.509 .107 1.606 .112
-45.404 37.657 -.078 -1.206 .231-282.541 42.608 -6.631 .000
11.131 1.575 .426 7.066 .00012.271 1.317 .620 9.317 .000
5.713 1.402 .244 4.074 .0002.659 1.500 .118 1.773 .080
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVALU(Constant)PAYOUTEPSDIVIDENDPERATIOROCEBOOKVALU(Constant)PAYOUTEPSPERATIOROCEBOOKVALU(Constant)PAYOUTEPSPERATIOROCE
Model1
2
3
4
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (PHARMACY INDUSTRY): PE ratio, EPS and Payout are the significant determinants of share price for pharmacy
industry with positive t- values. . The coefficient of multiple determination, (R2),
obtained from the equations indicate that variables included in the equation could explain
73.7 % variation of the dependent variable share price. The computed F-value 38.559 is
found to be significant at 5% level. The variables book value is found to be insignificant
with negative t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 79-
CORRELATION MATRIX: TEXTILE
Correlations
1 -.099 -.030 .022 .153 -.162 -.046.413 .803 .854 .206 .180 .704
70 70 70 70 70 70 70-.099 1 .778** -.113 .096 .664** .262*.413 .000 .353 .430 .000 .029
70 70 70 70 70 70 70-.030 .778** 1 -.081 -.058 .546** .459**.803 .000 .504 .631 .000 .000
70 70 70 70 70 70 70.022 -.113 -.081 1 .206 -.131 -.036.854 .353 .504 .087 .279 .766
70 70 70 70 70 70 70.153 .096 -.058 .206 1 .064 -.071.206 .430 .631 .087 .599 .561
70 70 70 70 70 70 70-.162 .664** .546** -.131 .064 1 -.154.180 .000 .000 .279 .599 .202
70 70 70 70 70 70 70-.046 .262* .459** -.036 -.071 -.154 1.704 .029 .000 .766 .561 .202
70 70 70 70 70 70 70
Pearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)NPearson CorrelatioSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookvalu
payout eps dividend peratio growth roce bookvalu
Correlation is significant at the 0.01 level (2-tailed).**.
Correlation is significant at the 0.05 level (2-tailed).*.
Interpretation: There is a significant correlation between Dividend & EPS, Dividend & ROCE, EPS and
ROCE, Dividend & Book Value at 1% level of significance. Except that no variables are
correlated. Therefore there would not be any problem of multicollinearity analysis
because of linear multiple regression model is being used for the further analysis to
overcome this problem
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 80-
REGRESSION RESULTS TEXTILE INDUSTRY
Model Summary
.774a .598 .553 89.5228
.773b .598 .560 88.8656
.772c .596 .565 88.3641
.769d .591 .566 88.2094
Model1234
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT,GROWTH, ROCE, EPS, DIVIDEND
a.
Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT,GROWTH, ROCE, EPS
b.
Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH,ROCE, EPS
c.
Predictors: (Constant), BOOKVAL, GROWTH, ROCE,EPS
d.
ANOVAe
740358.9 7 105765.554 13.197 .000a
496889.0 62 8014.3381237248 69739731.4 6 123288.572 15.612 .000b
497516.4 63 7897.0861237248 69737521.9 5 147504.377 18.891 .000c
499726.0 64 7808.2181237248 69731489.2 4 182872.289 23.503 .000d
505758.7 65 7780.9031237248 69
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT, GROWTH, ROCE, EPS,DIVIDEND
a.
Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT, GROWTH, ROCE, EPSb.
Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH, ROCE, EPSc.
Predictors: (Constant), BOOKVAL, GROWTH, ROCE, EPSd.
Dependent Variable: AVGPRICEe.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 81-
Coefficients a
-164.599 64.268 -2.561 .013-.114 .129 -.075 -.885 .3802.246 1.140 .292 1.970 .053
.197 .705 .043 .280 .781
.121 .245 .041 .495 .6222.753 .812 .294 3.389 .001
-4.895 2.514 -.255 -1.947 .056131.238 25.896 .558 5.068 .000
-171.718 58.583 -2.931 .005-.107 .126 -.070 -.853 .3972.419 .952 .315 2.541 .014
.128 .242 .044 .529 .5992.701 .785 .288 3.440 .001
-4.654 2.345 -.242 -1.985 .052134.957 22.062 .574 6.117 .000
-168.475 57.933 -2.908 .005-.110 .125 -.072 -.879 .3832.403 .946 .313 2.540 .0142.792 .762 .298 3.666 .001
-4.758 2.323 -.248 -2.048 .045134.660 21.931 .573 6.140 .000
-177.166 56.983 -3.109 .0032.373 .944 .309 2.514 .0142.687 .751 .287 3.578 .001
-4.452 2.293 -.232 -1.941 .057136.074 21.833 .579 6.232 .000
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)PAYOUTEPSPERATIOGROWTHROCEBOOKVAL(Constant)PAYOUTEPSGROWTHROCEBOOKVAL(Constant)EPSGROWTHROCEBOOKVAL
Model1
2
3
4
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (TEXTILES INDUSTRY): EPS, book value and Growth are the significant determinants of share price for textiles
industry with positive t- values. . The coefficient of multiple determination, (R2),
obtained from the equations indicate that variables included in the equation could explain
55.3 % variation of the dependent variable share price. The computed F-value 13.197 is
found to be significant at 5% level. The variables Dividend, Payout and ROCE are found
to be insignificant with negative t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 82-
CORRELATION MATRIX: MISCELLANEOUS
Correlations
1 -.151 .276* .203 -.306* .602** .087.211 .021 .092 .010 .000 .476
70 70 70 70 70 70 70-.151 1 .588** -.167 .192 .104 .480**.211 .000 .167 .111 .391 .000
70 70 70 70 70 70 70.276* .588** 1 -.061 .069 .166 .268*.021 .000 .617 .573 .170 .025
70 70 70 70 70 70 70.203 -.167 -.061 1 -.062 .219 -.021.092 .167 .617 .612 .068 .865
70 70 70 70 70 70 70-.306* .192 .069 -.062 1 -.061 -.018.010 .111 .573 .612 .618 .881
70 70 70 70 70 70 70.602** .104 .166 .219 -.061 1 .053.000 .391 .170 .068 .618 .664
70 70 70 70 70 70 70.087 .480** .268* -.021 -.018 .053 1.476 .000 .025 .865 .881 .664
70 70 70 70 70 70 70
Pearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookvalu
payout eps dividend peratio growth roce bookvalu
Correlation is significant at the 0.05 level (2-tailed).*.
Correlation is significant at the 0.01 level (2-tailed).**.
Interpretation: There is a significant correlation between Dividend & EPS, ROCE, Payout & Book
Value at 1% level of significance. Except that no other variables are correlated. There
would not be any problem of multicollinearity because of linear multiple regression
model being used for the further analysis.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 83-
REGRESSION RESULTS MISCELLANEOUS INDUSTRY
Model Summary
.641a .411 .345 385.4094
.641b .411 .355 382.3881
.633c .401 .354 382.8139
.626d .392 .354 382.6930
.619e .383 .355 382.4791
Model12345
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVALU, GROWTH,PERATIO, ROCE, DIVIDEND, PAYOUT, EPS
a.
Predictors: (Constant), BOOKVALU, GROWTH,PERATIO, ROCE, PAYOUT, EPS
b.
Predictors: (Constant), BOOKVALU, PERATIO, ROCE,PAYOUT, EPS
c.
Predictors: (Constant), BOOKVALU, PERATIO, ROCE,EPS
d.
Predictors: (Constant), PERATIO, ROCE, EPSe.
ANOVAf
6435284 7 919326.250 6.189 .000a
9209504 62 148540.39015644788 69
6432885 6 1072147.533 7.332 .000b
9211903 63 146220.67915644788 69
6265814 5 1253162.829 8.551 .000c
9378974 64 146546.46615644788 69
6125285 4 1531321.132 10.456 .000d
9519503 65 146453.89915644788 69
5989631 3 1996543.573 13.648 .000e
9655157 66 146290.26115644788 69
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
4
5
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, DIVIDEND,PAYOUT, EPS
a.
Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, PAYOUT, EPSb.
Predictors: (Constant), BOOKVALU, PERATIO, ROCE, PAYOUT, EPSc.
Predictors: (Constant), BOOKVALU, PERATIO, ROCE, EPSd.
Predictors: (Constant), PERATIO, ROCE, EPSe.
Dependent Variable: AVGPRICEf.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 84-
Coefficients a
-149.592 218.262 -.685 .496-3.410 3.430 -.157 -.994 .3245.181 2.208 .378 2.347 .022
-2.28E-02 .180 -.018 -.127 .8997.168 2.354 .311 3.045 .003
-2.230 2.145 -.110 -1.040 .3036.294 2.322 .365 2.711 .009
85.033 80.696 .122 1.054 .296-145.408 214.073 -.679 .499
-3.632 2.926 -.167 -1.241 .2194.998 1.660 .365 3.011 .0047.166 2.336 .311 3.068 .003
-2.261 2.115 -.111 -1.069 .2896.370 2.227 .369 2.861 .006
86.574 79.153 .124 1.094 .278-217.989 203.245 -1.073 .288
-2.753 2.812 -.127 -.979 .3314.761 1.647 .347 2.891 .0057.153 2.338 .310 3.059 .0036.092 2.214 .353 2.752 .008
91.923 79.083 .132 1.162 .249-238.084 202.143 -1.178 .243
5.299 1.552 .386 3.415 .0017.095 2.337 .308 3.036 .0034.739 1.730 .275 2.740 .008
74.028 76.918 .106 .962 .339-65.329 92.908 -.703 .484
6.018 1.359 .439 4.427 .0007.253 2.330 .315 3.113 .0034.717 1.728 .273 2.729 .008
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVALU(Constant)PAYOUTEPSPERATIOGROWTHROCEBOOKVALU(Constant)PAYOUTEPSPERATIOROCEBOOKVALU(Constant)EPSPERATIOROCEBOOKVALU(Constant)EPSPERATIOROCE
Model1
2
3
4
5
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Interpretation (MISCELLANEOUS INDUSTRY): EPS, PE ratio and ROCE are the significant determinants of share price for textiles
industry with positive t- values. The coefficient of multiple determination, (R2), obtained
from the equations indicate that variables included in the equation could explain 35.5 %
variation of the dependent variable share price. The computed F-value 6.819 is found to
be significant at 5% level. The variables Dividend, Payout and Growth are found to be
insignificant with negative t-values.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 85-
CORRELATION MATRIX: AGGREGATE OF ALL INDUSTIES
Correlations
1 -.048 .044 .133** -.040 .004 .019.314 .365 .006 .402 .931 .693
435 435 435 435 435 435 435-.048 1 .192** -.045 .044 .081 .107*.314 .000 .347 .361 .093 .025435 435 435 435 435 435 435.044 .192** 1 .003 .040 .289** .370**.365 .000 .958 .405 .000 .000435 435 435 435 435 435 435.133** -.045 .003 1 .105* .020 .051.006 .347 .958 .028 .670 .290435 435 435 435 435 435 435
-.040 .044 .040 .105* 1 .046 .026.402 .361 .405 .028 .342 .585435 435 435 435 435 435 435.004 .081 .289** .020 .046 1 .202**.931 .093 .000 .670 .342 .000435 435 435 435 435 435 435.019 .107* .370** .051 .026 .202** 1.693 .025 .000 .290 .585 .000435 435 435 435 435 435 435
Pearson CorrelaSig. (2-tailed)NPearson CorrelaSig. (2-tailed)NPearson CorrelaSig. (2-tailed)NPearson CorrelaSig. (2-tailed)NPearson CorrelaSig. (2-tailed)NPearson CorrelaSig. (2-tailed)NPearson CorrelaSig. (2-tailed)N
payout
eps
dividend
peratio
growth
roce
bookval
payout eps dividend peratio growth roce bookval
Correlation is significant at the 0.01 level (2-tailed).**.
Correlation is significant at the 0.05 level (2-tailed).*.
Interpretation: There is a significant correlation between Dividend & Book Value at 1% level of
significance. Except that no other variables are correlated. There would not be any
problem of multicollinearity analysis because of linear multiple regression model being
used for the further analysis.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 86-
REGRESSION RESULTS AGGREGATE INDUSTRY
Model Summary
.583a .339 .329 290.0709
.582b .339 .330 289.7461
.581c .338 .330 289.6770
Model123
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH,EPS, PERATIO, ROCE, DIVIDEND
a.
Predictors: (Constant), BOOKVAL, PAYOUT, EPS,PERATIO, ROCE, DIVIDEND
b.
Predictors: (Constant), BOOKVAL, EPS, PERATIO,ROCE, DIVIDEND
c.
ANOVAd
18454963 7 2636423.250 31.333 .000a
35928266 427 84141.13954383229 43418451440 6 3075239.959 36.631 .000b
35931789 428 83952.77854383229 43418384641 5 3676928.153 43.818 .000c
35998588 429 83912.79354383229 434
RegressionResidualTotalRegressionResidualTotalRegressionResidualTotal
Model1
2
3
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH, EPS, PERATIO, ROCE,DIVIDEND
a.
Predictors: (Constant), BOOKVAL, PAYOUT, EPS, PERATIO, ROCE, DIVIDENDb.
Predictors: (Constant), BOOKVAL, EPS, PERATIO, ROCE, DIVIDENDc.
Dependent Variable: AVGPRICEd.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 87-
Coefficientsa
-360.676 54.144 -6.661 .000-.250 .277 -.036 -.901 .368.271 .165 .066 1.636 .102.279 .093 .132 2.990 .003
2.040 .469 .174 4.349 .000-.111 .541 -.008 -.205 .8385.552 .928 .248 5.986 .000
191.844 23.455 .349 8.179 .000-362.254 53.532 -6.767 .000
-.247 .277 -.035 -.892 .373.269 .165 .066 1.632 .103.279 .093 .132 2.989 .003
2.030 .466 .173 4.358 .0005.546 .926 .247 5.989 .000
191.836 23.428 .349 8.188 .000-369.038 52.976 -6.966 .000
.277 .165 .067 1.681 .094
.275 .093 .130 2.949 .0031.975 .462 .169 4.279 .0005.555 .926 .248 6.000 .000
191.853 23.423 .349 8.191 .000
(Constant)PAYOUTEPSDIVIDENDPERATIOGROWTHROCEBOOKVAL(Constant)PAYOUTEPSDIVIDENDPERATIOROCEBOOKVAL(Constant)EPSDIVIDENDPERATIOROCEBOOKVAL
Model1
2
3
B Std. Error
UnstandardizedCoefficients
Beta
Standardized
Coefficients
t Sig.
Dependent Variable: AVGPRICEa.
Excluded Variablesc
-.008a -.205 .838 -.010 .982-.006b -.156 .876 -.008 .985-.035b -.892 .373 -.043 .978
GROWTHGROWTHPAYOUT
Model23
Beta In t Sig.Partial
Correlation Tolerance
Collinearity
Statistics
Predictors in the Model: (Constant), BOOKVAL, PAYOUT, EPS, PERATIO, ROCE,DIVIDEND
a.
Predictors in the Model: (Constant), BOOKVAL, EPS, PERATIO, ROCE,DIVIDEND
b.
Dependent Variable: AVGPRICEc.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 88-
INTERPRETATION OF REGRESSION RESULTS: YEAR-WISE
Table 3
Y *significant determinant
N *not significant determinant
INTERPRETATION: The regression analysis for aggregate of industries for all the year, clearly depicts
Book value, ROCE and EPS are the most important determinants of market price
among the among all the variables with a high positive values at 1 % level of
significance. At the same time there is a positive significant relationship between PE
ratio and market price of share at 5% level of significance. Where as Dividend Per
Share, Payout ratio and Growth remains insignificant with a negative values. They do
not have any influence on the market share price.
Year
Payout EPS DIV P/E R ROCE Growth BV Adj r 2 F-Value
2002
N Y Y Y Y N Y .662 35.639
2003
N Y N N Y N Y .475 20.489
2004
N N N Y Y N Y .451 24.570
2005
N Y N N Y N Y .459 15.607
2006
Y Y N Y N N Y .756 89.821
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 89-
INTERPRETATION OF REGRESSION RESULTS: INDUSTRY WISE
Table 4
Y *significant determinant
N *not significant determinant
INTERPRETATION: The regression analysis for various industries in aggregate depicts that there earnings per
share(EPS) and price earning ratio(P/E R) are the significant determinants of equity
share price with highly positive t – values. Dividend is significant at a low positive t-
value. Where as Book value (BV), Growth (G), Return on Capital Employed
(ROCE) and Payout has no any influence on the market share price. They are
insignificant with negative t-values.
Except for automobile industry, the R2 ranges from 13.2% to 56.6%. it means less
than 56% of variation in dependent variable is explained by the independent variables.
Industry
Payout
EPS DIV P/E R ROCE Growth
BV AdjR 2
F-value
Automobile
N Y Y Y N N N .897 104.636
Cements
N Y Y N N N N .310 10.574
Chemical
N N Y Y N N N .132 6.606
Pharmacy
Y Y N Y N N N .541 66.314
Textiles
N Y N N N Y Y .566 23.503
Miscellaneous
N Y N Y Y N N .345 13.648
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 90-
CHAPTER V
CONCLUSION
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 91-
CONCLUSION
The present study attempts to examine the empirical relationship of explanatory
variables namely, dividend per share, earning per share , price earning ratio, book
value, return on capital employed, growth and payout ratio on market price of
shares from the year 2002 to 2006 in the post reform era of liberalization. The
relationship between independent variables and dependent variable of 87 companies
(randomly selected) of six industries are studied.
The results reveal that Earnings Per Share is the only determinant which is
common in both the analysis (year wise and industry wise). Therefore EPS is an
important determinant of share price. If look particularly into the year wise
analysis- Book value also influences the share price. And looking into industry wise
it is found that Price earning ratio also influences significantly on the dependent
variable.
The other independent variables like Return on capital employed and
dividend per share remain insignificant but with a positive value. They are not
significant determinants of share price.
The regression analysis clearly depicts that Growth and payout remains most
insignificant determinant with negative value. They do not have any influence on the
share price. Overall the R2 ranges from 13 % to 56 % (except for automobile
industry). It means less than 50 % of variation in dependent variable is explained by
these independent variables.
Finally it can be concluded that apart from the above independent variables
there are some other factors which influences the market price of the share. Those
factors may be macroeconomic factors like government policy, federal bank policy,
central bank interest rates, business cycle, demand and supply shocks, GDP,
inflation, exchange rates. Etc.
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 92-
CHAPTER V1
BIBLIOGRAPHY
&
ANNEXTURES
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 93-
Bibliography Journal References:
⇒ Shefali Sharma & Balwinder, (2006),”Determinants of equity share prices in the Indian corporate sector”, The ICFAI Journal of applied finance, Vol. 12 No.4 pp 21-31.
⇒ Monica Singania (2006), “Determinants of equity prices: a study of select
Indian companies”, The ICFAI Journal of applied finance, Vol.12, No.9 pp 39-50.
⇒ Subir Sen, Rajendra Ray (2003), “Key determinants of stock prices in
India”, The ICFAI Journal of applied finance, Vol. 9, No.7 pp 35-40. ⇒ A. James Heins; Stephen L. Alison(1966), “Some factors affecting stock
price variability”, The Journal of Business, vol. 39, No. 1, pp. 19-23 ⇒ James L. Bickler (1969), “Empirical tests of the compatibility of selected
equity share price equations with a Descriptive model, The Journal of applied finance, Vol. 24, No.1pp 106-108.
Books Referred:
Investments- Bodie, Kane, Marcus
Modern Portfolio Theory And Investment Analysis- Elton & Gruber
Security Analysis And Portfolio Management - Prasanna Chandra
Econometrics – Ashwath Damodaran
Statistics- S.C Gupta
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 94-
Software Used:
⇒ Prowess
⇒ Capitaline
⇒ SPSS 10
⇒ MS Excel
WEBLIOGRAPHY:
⇒ www.jstor.org
⇒ www.nseindia.com
⇒ www.icfaipress.org
⇒ www.bseindia.com
⇒ www.capitaline.com
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 95-
ANNEXTURES Table 5: LIST OF THE COMPANIES UNDER THE STUDY
IP RINGS LTD MADRAS CEMENT LTD HI-TECH GEARS LTD SHREE CEMENT LTD MENON PISTONS LTD EVEREST INDUSTRIES LTD SAMKRG PISTONS & RINGS LTD RAMCO INDUSTRIES LTD UCAL FUEL SYSTEMS LTD DALMIA CEMENTS SWARAJ MAZDA LTD DECCAN CEMENTS LTD ASHOK LEYLAND LTD SAGAR CEMENTS LTD BAJAJ AUTO LTD OCL INDIA LTD (CEMENTS) MAHINDRA & MAHINDRA LTD HINDUSTAN SANITARYWARE &
INDUSTRIES LTD PUNJAB TRACTORS LTD ORIENT CERAMICS & INDUSTRIES
LTD VST TILLERS TRACTORS LTD KAKATIYA CEMENTS SUGAR &
INDUSTRIES LTD LUMAX INDUSTRIES LTD ALPS INDUSTRIES LTD DEEPAK NITRITE LTD RAYMOND LTD THIRUMALAI CHEMICALS SKY INDUSTRIES LTD CIBA SPECIALITY CHEMICALS UNIPRODUCTS (INDIA) LTD INDIAN HUMPE PIPE LINE COMPANY LTD CHESLIND TEXTILES LTD INDIA GLYCOLS LTD PATSPIN INDIA LTD AARTI INDUSTRIES LTD EUROTEX INDUSTRIES AND
EXPORTS LTD ALKYL AMINES CHEMICALS LTD ADITYA BIRLA NUVO LTD TANFAC INDUSTRIES LTD LOYAL TEXTILES MILLS LTD HIKAL LTD HIMATSINGKA SEIDE LTD PIDILITE INDUSTRIES LTD PIONEER EMBROIDERIES LTD PUNJAB CHEMICALS & CROP PROTECTION LTD CHEVIOT COMPANY LTD SRF POLYMERS LTD DONEAR INDUSTRIES LTD GODREJ INDUSTRIES LTD BSL LTD JAYANT AGRO ORGANICS LTD AARTI DRUGS LTD CLARIANT CHEMICALS (INDIA) LTD DIVIS LABORATORIES LTD ALCHEMIST LTD GRANULES INDIA LTD CRISIL LTD LUPIN LTD PANACEA BIOTEC LTD NEULAND LABORATORIES LTD
Determinants Of Equity Share Prices: An Empirical Study
Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 96-
Continued….. HINDALCO INDUSTRIES LTD SHASUN CHEMICALS & DRUGS LTD MADRAS ALUMINIUM CO LTD SUVEN LIFE SCIENCES LTD BRITANNIA INDUSTRIES LTD WYETH LTD NESTLE INDIA LTD NOVARTIS INDIA LTD GRASIM INDUSTRIES LTD GLAXOSMITHKLINE PHARMA LTD ELECTROSTEEL CASTINGS LTD SOLVAY PHARMA INDIA LTD INFOSYS TECHNOLOGIES LTD MERCK LTD APOLLO TYRES LTD THEMIS MEDICARE LTD LARSEN & TOUBRO LTD ALEMBIC LTD BHARAT EARTH MOVERS LTD CADILA HEALTHCARE LTD MANUGRAPH INDIA LTD DR REDDYS LABORATORIES LTD ACC J B CHEMICALS &
PHARAMACEUTICALS LTD AMBUJA CEMENTS LTD NICHOLAS PIRAMAL INDIA LTD
RANBAXY LABORATORIES LTD
Table 6: NO OF SECTORS AND COMPANIES TAKEN UNDER THE
STUDY
SECTOR NO. OF COMPANIES AUTOMOBILES 12 CEMENTS 13 CHEMICALS 15 PHARMACEUTICALS 19 TEXTILE & COTTON 14 MISCELLANEOUS 14
TOTAL 87