This is a study on equity share valuation. In this work, the author studied the behavior of certain fundamental factors determining share price in Sri Lanka. It attempts to answer the following question: What is the empirical relationship between equity share price and factors like earning, growth, leverage, and risk and company size?
To assess the relative influence of the above mentioned fundamental factors on share price the author used regression analysis with standard OLS assumption and continuous cross-section analysis was carried out with log linear regression model for the period 1993 through 2001. The sample consisted of 30 shares from a group of 239 shares of firms in all industries except the bank and insurance industry.
On the basis of this study, the author found out that dividend appears a powerful influence on share than growth and retained earnings. Business risk and financial risk cannot to be assessed which are redundant variables. This means there are relatively free from major risk in Sri Lanka Stock Market. Company size is considerable influence on share prices in which large companies enjoy high value of share. On the basis of these findings I may make the following observation about the Stock Market in Sri Lanka.
Table of Contents
Chapter 1: Introduction
1.1 Introduction
1.1.1 The role of a share market
1.1.2 History of the stock exchanges
1.1.3 The development of the Sri Lankan share market
1.1.4 The Colombo Stock Exchange (CSE)
1.2 The significance of the study
1.3 Problem of the study
1.4 Objectives of the study
1.5 The limitations of the study
1.6 Organisation of the study
Chapter 2: Literature Review
2.1 Introduction
2.2. Models of Equity Valuation
2.2.1 The early models
2.2.2 The Durand model
2.2.3 Cost of Capital Model
2.2.4 Gordon Model
2.3 A some other important empirical studies
2.4 Some methodological observations
2.5 Substantive findings
2.5.1 Dividend, dividend payout ratio and retained earnings
2.5.2 Growth
2.5.3 Risk
2.5.4 Leverage
2.5.5 Size
Chapter 3: Research Design
3.1 Introduction
3.2 Scope of the study
3.2.1 Sample selection
3.2.2 Criteria for selection of companies
3.2.3 Sample of cross sections
3.3 Conceptualisation
3.3.1 Return
3.3.2 Growth
3.3.3 Risk
3.3.4 Leverage
3.3.5 Size
3.4 Formulating hypotheses
3.4.1 The data
3.4.2 Method of investigation
3.4.3 Measures of variables
3.4.4 The model
Chapter 4: Data Analysis and Presentation
4.1. Introduction
4.2 Result Of Estimations
4.2.1 Choice of the return measure
4.2.2 Choice of the growth measure
4.2.3 Choice of the risk measure
4.2.4 Choice of the size measure
4.2.5 Choice of the leverage measure
4.3 Discussion of results
4.3.1 Over-all performance
4.3.2 Performance of an independent variables
Chapter 5: Main Findings and Recommendations
5.1 Introduction
5.2 Main findings
5.3 Recommendations
Research Objectives and Key Themes
This study aims to empirically identify and analyze the fundamental corporate financial factors that influence equity share prices within the Sri Lankan market. By examining a sample of listed companies over the period 1993-2002, the research seeks to establish the relationship between share valuation and key economic variables such as return, growth, risk, leverage, and company size.
- Empirical determination of factors influencing share prices in Sri Lanka.
- Comparative analysis of the influence of fundamental variables on share valuation.
- Application of regression analysis to model share price behavior.
- Evaluation of the relative impact of dividend, growth, risk, leverage, and size.
- Provision of decision-making guidelines for investors and corporate management.
Excerpt from the Book
1.1.2 History of the stock exchanges
The stock exchange is the market where stocks, shares and other securities are bought and sold. Bourses or stock exchange arose in Europe in the 16th century. Trading was carried on in those exchanges in terms of “securities” which represented goods. Antwerp, Lyons, Amsterdam and London become celebrated all over Europe for their stock exchanges. In course of time, these exchanges, particularly London Exchange, tended to deal only in company shares. The London Stock Exchange may be considered as the earliest of the modern type of stock market. It had more than 500 members in 1802. In course of time, the list of securities traded expanded greatly, the vast majority being international as contrasted with home issue. In New York, the stock exchange came into existence immediately after the 13 colonies become independent to from the United State of America. In 1817, the brokers organised themselves as New York Stock Exchange Board with a definite constitution. There were many changers and reorganizations and amalgamations, till in 1869 the New York Stock Exchange was founded with a maximum membership limited to 1,100.
Summary of Chapters
Chapter 1: Introduction: Provides the background, significance, problem statement, objectives, and limitations regarding the study of share price determination in Sri Lanka.
Chapter 2: Literature Review: Surveys existing empirical works and theoretical models of equity valuation to understand the influence of various fundamental factors.
Chapter 3: Research Design: Outlines the methodology, sample selection criteria, and the conceptual framework used to formulate hypotheses and analyze variables.
Chapter 4: Data Analysis and Presentation: Presents the empirical regression results and discussions derived from the log-linear models applied to the selected data.
Chapter 5: Main Findings and Recommendations: Summarizes the key conclusions of the study and offers specific recommendations for corporate management and investors based on the findings.
Keywords
Equity Valuation, Share Price, Sri Lanka Stock Market, Fundamental Factors, Regression Analysis, Dividend, Growth Rate, Market Risk, Financial Leverage, Company Size, Stock Exchange, Market Capitalization, Investor Behavior, Empirical Study, Asset Pricing.
Frequently Asked Questions
What is the core focus of this research?
The research focuses on empirically determining the relationship between equity share prices and fundamental financial economic factors within the context of the Sri Lankan Stock Market.
Which fundamental factors are analyzed in this study?
The study investigates the influence of five primary factors: Return (dividend), Growth, Risk, Leverage, and Company Size.
What is the primary objective of this work?
The primary objective is to identify which significant corporate financial factors influence share prices and to analyze the nature of that relationship for better valuation practices.
Which scientific method is utilized for the analysis?
The researcher utilizes multiple regression analysis based on standard OLS assumptions and employs log-linear regression models for continuous cross-sectional analysis.
What topics are covered in the main body of the work?
The main body covers the literature review of equity valuation models, the design of the research, the data selection process, and detailed statistical analysis of the variables.
Which keywords best characterize this publication?
Key terms include Equity Valuation, Sri Lanka Stock Market, Fundamental Factors, Regression Analysis, Dividend, and Market Risk.
How does the author define the role of the share market in this study?
The author views the share market as an essential component of the capitalistic system, providing an organized forum for trading and resource allocation.
What is the author's observation regarding the sophistication of the Sri Lankan Stock Market?
The author observes that the market is not highly sophisticated, relying primarily on easily measurable factors like dividends and company size, while struggling to incorporate harder-to-measure factors like growth.
Why did the researcher choose to use average share prices as the dependent variable?
The average share price was used to mitigate distortions caused by short-term technical factors, thereby better reflecting the underlying fundamental influences.
- Citar trabajo
- Dr. Sriyantha Fernando (Autor), 2003, An Assessment of the Influence of Fundamental Factors on Share Prices in Sri Lanka, Múnich, GRIN Verlag, https://www.grin.com/document/373464
