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Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

DECLARATION
&
CERTIFICATES

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 2-


Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

CHAPTER II

LITERATURE REVIEW
&
PROBLEM IDENTIFICATION

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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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.

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Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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

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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Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

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

¾ What are the significant determinants of equity share prices in the


Indian corporate sector?

¾ What is the empirical relationship between share prices and various


explanatory variables?

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Determinants Of Equity Share Prices: An Empirical Study

Chapter III

RESEARH
METHODOLOGY

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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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

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Determinants Of Equity Share Prices: An Empirical Study

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)

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

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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Determinants Of Equity Share Prices: An Empirical Study

CHAPTER IV

ANALYSIS AND
INTERPRETATION
OF DATA

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Determinants Of Equity Share Prices: An Empirical Study

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:

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Determinants Of Equity Share Prices: An Empirical Study

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%

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 47-


Determinants Of Equity Share Prices: An Empirical Study

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

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 48-


Determinants Of Equity Share Prices: An Empirical Study

• 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

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 49-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: YEAR 2002

Correlations

payout eps dividend peratio growth roce bookval


payout Pearson Correlation 1 -.072 -.008 .083 -.096 -.009 .130
Sig. (2-tailed) .505 .942 .447 .379 .937 .230
N 87 87 87 87 87 87 87
eps Pearson Correlation -.072 1 .438** -.098 .038 .197 .225*
Sig. (2-tailed) .505 .000 .364 .729 .068 .036
N 87 87 87 87 87 87 87
dividend Pearson Correlation -.008 .438** 1 .097 .072 .506** .455**
Sig. (2-tailed) .942 .000 .373 .508 .000 .000
N 87 87 87 87 87 87 87
peratio Pearson Correlation .083 -.098 .097 1 -.005 .243* .179
Sig. (2-tailed) .447 .364 .373 .962 .023 .096
N 87 87 87 87 87 87 87
growth Pearson Correlation -.096 .038 .072 -.005 1 .063 -.018
Sig. (2-tailed) .379 .729 .508 .962 .564 .872
N 87 87 87 87 87 87 87
roce Pearson Correlation -.009 .197 .506** .243* .063 1 .062
Sig. (2-tailed) .937 .068 .000 .023 .564 .570
N 87 87 87 87 87 87 87
bookval Pearson Correlation .130 .225* .455** .179 -.018 .062 1
Sig. (2-tailed) .230 .036 .000 .096 .872 .570
N 87 87 87 87 87 87 87
**. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 50-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS YEAR 2002

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .830a .689 .662 77.61144
2 .830b .689 .666 77.15247
3 .829c .687 .668 76.86744
a. Predictors: (Constant), bookval, growth, roce, payout,
peratio, eps, dividend
b. Predictors: (Constant), bookval, roce, payout, peratio,
eps, dividend
c. Predictors: (Constant), bookval, roce, peratio, eps,
dividend

ANOVAd

Sum of
Model Squares df Mean Square F Sig.
1 Regression 1055609 7 150801.265 25.035 .000a
Residual 475859.3 79 6023.535
Total 1531468 86
2 Regression 1055268 6 175877.971 29.547 .000b
Residual 476200.3 80 5952.504
Total 1531468 86
3 Regression 1052871 5 210574.255 35.639 .000c
Residual 478596.9 81 5908.603
Total 1531468 86
a. Predictors: (Constant), bookval, growth, roce, payout, peratio, eps, dividend
b. Predictors: (Constant), bookval, roce, payout, peratio, eps, dividend
c. Predictors: (Constant), bookval, roce, peratio, eps, dividend
d. Dependent Variable: avgprice

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 51-


Determinants Of Equity Share Prices: An Empirical Study

Coefficientsa

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -144.097 33.847 -4.257 .000
payout -.067 .110 -.039 -.607 .545
eps .908 .250 .258 3.638 .000
dividend .415 .175 .212 2.374 .020
peratio 4.841 .854 .381 5.668 .000
growth .060 .251 .015 .238 .813
roce 2.504 .766 .253 3.269 .002
bookval 54.084 15.216 .266 3.555 .001
2 (Constant) -143.365 33.507 -4.279 .000
payout -.069 .109 -.040 -.635 .528
eps .908 .248 .258 3.660 .000
dividend .417 .174 .214 2.405 .018
peratio 4.841 .849 .381 5.701 .000
roce 2.508 .761 .253 3.294 .001
bookval 53.955 15.116 .265 3.569 .001
3 (Constant) -142.747 33.369 -4.278 .000
eps .920 .247 .262 3.730 .000
dividend .422 .173 .216 2.444 .017
peratio 4.817 .845 .379 5.700 .000
roce 2.502 .759 .253 3.298 .001
bookval 52.593 14.908 .259 3.528 .001
a. Dependent Variable: avgprice

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 52-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: YEAR 2003

Correlations

payout eps dividend peratio growth roce bookvalu


payout Pearson Correlatio 1 -.052 .216* .575** .052 .041 .145
Sig. (2-tailed) .634 .045 .000 .634 .708 .180
N 87 87 87 87 87 87 87
eps Pearson Correlatio -.052 1 .451** -.104 .041 .223* .220*
Sig. (2-tailed) .634 .000 .339 .708 .037 .041
N 87 87 87 87 87 87 87
dividend Pearson Correlatio .216* .451** 1 -.035 .062 .289** .261*
Sig. (2-tailed) .045 .000 .747 .570 .007 .015
N 87 87 87 87 87 87 87
peratio Pearson Correlatio .575** -.104 -.035 1 .090 -.040 .095
Sig. (2-tailed) .000 .339 .747 .405 .710 .382
N 87 87 87 87 87 87 87
growth Pearson Correlatio .052 .041 .062 .090 1 .017 .040
Sig. (2-tailed) .634 .708 .570 .405 .877 .711
N 87 87 87 87 87 87 87
roce Pearson Correlatio .041 .223* .289** -.040 .017 1 .193
Sig. (2-tailed) .708 .037 .007 .710 .877 .074
N 87 87 87 87 87 87 87
bookvalu Pearson Correlatio .145 .220* .261* .095 .040 .193 1
Sig. (2-tailed) .180 .041 .015 .382 .711 .074
N 87 87 87 87 87 87 87
*. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 53-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS YEAR 2003

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .711a .505 .461 121.9857
2 .710b .504 .467 121.2735
3 .709 c .502 .472 120.7522
4 .707d .500 .475 120.3311
a. Predictors: (Constant), BOOKVAL, GROWTH,
PERATIO, ROCE, EPS, DIVIDEND, PAYOUT
b. Predictors: (Constant), BOOKVAL, GROWTH,
PERATIO, ROCE, EPS, DIVIDEND
c. Predictors: (Constant), BOOKVAL, GROWTH, ROCE,
EPS, DIVIDEND
d. Predictors: (Constant), BOOKVAL, GROWTH, ROCE,
EPS

ANOVAe

Sum of
Model Squares df Mean Square F Sig.
1 Regression 1198432 7 171204.635 11.505 .000a
Residual 1175560 79 14880.504
Total 2373992 86
2 Regression 1197411 6 199568.440 13.569 .000b
Residual 1176582 80 14707.270
Total 2373992 86
3 Regression 1192923 5 238584.679 16.363 .000c
Residual 1181069 81 14581.097
Total 2373992 86
4 Regression 1186666 4 296666.567 20.489 .000d
Residual 1187326 82 14479.585
Total 2373992 86
a. Predictors: (Constant), BOOKVAL, GROWTH, PERATIO, ROCE, EPS, DIVIDEND,
PAYOUT
b. Predictors: (Constant), BOOKVAL, GROWTH, PERATIO, ROCE, EPS, DIVIDEND
c. Predictors: (Constant), BOOKVAL, GROWTH, ROCE, EPS, DIVIDEND
d. Predictors: (Constant), BOOKVAL, GROWTH, ROCE, EPS
e. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 54-


Determinants Of Equity Share Prices: An Empirical Study

Coefficients a

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -180.143 50.672 -3.555 .001
PAYOUT -.188 .716 -.027 -.262 .794
EPS .574 .401 .131 1.431 .156
DIVIDEND 4.082E-02 .058 .068 .701 .486
PERATIO .243 .405 .059 .599 .551
GROWTH -1.062 .526 -.161 -2.021 .047
ROCE 4.284 .921 .390 4.654 .000
BOOKVAL 106.393 21.558 .414 4.935 .000
2 (Constant) -183.866 48.355 -3.802 .000
EPS .589 .394 .134 1.494 .139
DIVIDEND 3.625E-02 .055 .060 .656 .514
PERATIO .180 .327 .044 .552 .582
GROWTH -1.060 .522 -.161 -2.028 .046
ROCE 4.284 .915 .390 4.680 .000
BOOKVAL 106.074 21.398 .413 4.957 .000
3 (Constant) -183.996 48.147 -3.822 .000
EPS .565 .390 .129 1.448 .151
DIVIDEND 3.605E-02 .055 .060 .655 .514
GROWTH -1.033 .518 -.157 -1.994 .049
ROCE 4.266 .911 .388 4.684 .000
BOOKVAL 107.523 21.145 .419 5.085 .000
4 (Constant) -190.779 46.856 -4.072 .000
EPS .664 .358 .151 1.855 .067
GROWTH -1.018 .516 -.154 -1.975 .052
ROCE 4.381 .890 .399 4.920 .000
BOOKVAL 109.699 20.810 .427 5.271 .000
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 55-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: YEAR 2004

Correlations

payout eps dividend peratio growth roce bookval


payout Pearson Correlation 1 -.050 -.026 .056 -.023 -.067 -.120
Sig. (2-tailed) .647 .814 .608 .830 .538 .269
N 87 87 87 87 87 87 87
eps Pearson Correlation -.050 1 .232* -.096 .081 .017 .020
Sig. (2-tailed) .647 .030 .377 .456 .876 .851
N 87 87 87 87 87 87 87
dividend Pearson Correlation -.026 .232* 1 .108 -.153 .309** .496**
Sig. (2-tailed) .814 .030 .321 .156 .004 .000
N 87 87 87 87 87 87 87
peratio Pearson Correlation .056 -.096 .108 1 -.057 .179 .146
Sig. (2-tailed) .608 .377 .321 .603 .097 .177
N 87 87 87 87 87 87 87
growth Pearson Correlation -.023 .081 -.153 -.057 1 .081 -.177
Sig. (2-tailed) .830 .456 .156 .603 .457 .100
N 87 87 87 87 87 87 87
roce Pearson Correlation -.067 .017 .309** .179 .081 1 .217*
Sig. (2-tailed) .538 .876 .004 .097 .457 .044
N 87 87 87 87 87 87 87
bookval Pearson Correlation -.120 .020 .496** .146 -.177 .217* 1
Sig. (2-tailed) .269 .851 .000 .177 .100 .044
N 87 87 87 87 87 87 87
*. 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..

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 56-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS YEAR 2004


Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .689a .475 .429 196.6439
2 .689b .475 .436 195.4157
3 .689 c .475 .443 194.2152
4 .688d .474 .448 193.3043
5 .686e .470 .451 192.7421
a. Predictors: (Constant), BOOKVAL, EPS, PAYOUT,
PERATIO, GROWTH, ROCE, DIVIDEND
b. Predictors: (Constant), BOOKVAL, EPS, PAYOUT,
PERATIO, ROCE, DIVIDEND
c. Predictors: (Constant), BOOKVAL, EPS, PERATIO,
ROCE, DIVIDEND
d. Predictors: (Constant), BOOKVAL, PERATIO, ROCE,
DIVIDEND
e. Predictors: (Constant), BOOKVAL, PERATIO, ROCE

ANOVAf

Sum of
Model Squares df Mean Square F Sig.
1 Regression 2766912 7 395273.152 10.222 .000a
Residual 3054837 79 38668.825
Total 5821749 86
2 Regression 2766765 6 461127.520 12.075 .000b
Residual 3054984 80 38187.301
Total 5821749 86
3 Regression 2766465 5 553292.983 14.669 .000c
Residual 3055284 81 37719.559
Total 5821749 86
4 Regression 2757691 4 689422.714 18.450 .000d
Residual 3064058 82 37366.566
Total 5821749 86
5 Regression 2738340 3 912779.992 24.570 .000e
Residual 3083409 83 37149.509
Total 5821749 86
a. Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, GROWTH, ROCE,
DIVIDEND
b. Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, ROCE, DIVIDEND
c. Predictors: (Constant), BOOKVAL, EPS, PERATIO, ROCE, DIVIDEND
d. Predictors: (Constant), BOOKVAL, PERATIO, ROCE, DIVIDEND
e. Predictors: (Constant), BOOKVAL, PERATIO, ROCE
f. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 57-


Determinants Of Equity Share Prices: An Empirical Study

Coefficients a

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -323.455 92.239 -3.507 .001
PAYOUT -2.70E-02 .302 -.007 -.090 .929
EPS 5.805E-02 .122 .041 .475 .636
DIVIDEND .141 .256 .056 .549 .585
PERATIO 3.836 1.512 .214 2.538 .013
GROWTH -7.36E-02 1.195 -.005 -.062 .951
ROCE 5.640 1.378 .361 4.093 .000
BOOKVAL 157.395 39.859 .381 3.949 .000
2 (Constant) -325.327 86.554 -3.759 .000
PAYOUT -2.66E-02 .300 -.007 -.089 .930
EPS 5.721E-02 .121 .040 .474 .637
DIVIDEND .143 .252 .056 .566 .573
PERATIO 3.840 1.501 .214 2.558 .012
ROCE 5.627 1.353 .360 4.160 .000
BOOKVAL 157.681 39.342 .382 4.008 .000
3 (Constant) -327.224 83.353 -3.926 .000
EPS 5.779E-02 .120 .040 .482 .631
DIVIDEND .141 .250 .056 .565 .574
PERATIO 3.830 1.488 .213 2.574 .012
ROCE 5.635 1.341 .361 4.201 .000
BOOKVAL 158.140 38.760 .383 4.080 .000
4 (Constant) -321.706 82.177 -3.915 .000
DIVIDEND .173 .240 .068 .720 .474
PERATIO 3.752 1.472 .209 2.549 .013
ROCE 5.612 1.334 .359 4.206 .000
BOOKVAL 156.306 38.392 .379 4.071 .000
5 (Constant) -341.317 77.301 -4.415 .000
PERATIO 3.757 1.468 .209 2.560 .012
ROCE 5.837 1.293 .374 4.514 .000
BOOKVAL 169.009 33.994 .409 4.972 .000
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 58-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: YEAR 2005

Correlations

payout eps dividend peratio growth roce bookval


payout Pearson Correlatio 1 -.165 .088 .154 .149 .133 -.028
Sig. (2-tailed) .126 .420 .154 .167 .218 .799
N 87 87 87 87 87 87 87
eps Pearson Correlatio -.165 1 .486** -.134 .132 .283** .574**
Sig. (2-tailed) .126 .000 .218 .224 .008 .000
N 87 87 87 87 87 87 87
dividend Pearson Correlatio .088 .486** 1 -.045 .080 .273* .467**
Sig. (2-tailed) .420 .000 .680 .461 .011 .000
N 87 87 87 87 87 87 87
peratio Pearson Correlatio .154 -.134 -.045 1 .109 -.014 -.130
Sig. (2-tailed) .154 .218 .680 .317 .901 .232
N 87 87 87 87 87 87 87
growth Pearson Correlatio .149 .132 .080 .109 1 -.038 .022
Sig. (2-tailed) .167 .224 .461 .317 .725 .840
N 87 87 87 87 87 87 87
roce Pearson Correlatio .133 .283** .273* -.014 -.038 1 .231*
Sig. (2-tailed) .218 .008 .011 .901 .725 .031
N 87 87 87 87 87 87 87
bookval Pearson Correlatio -.028 .574** .467** -.130 .022 .231* 1
Sig. (2-tailed) .799 .000 .000 .232 .840 .031
N 87 87 87 87 87 87 87
**. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 59-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS YEAR 2005

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .709a .502 .458 247.2454
2 .705b .498 .460 246.8029
3 .700 c .491 .459 246.9405
a. Predictors: (Constant), BOOKVALU, GROWTH,
PAYOUT, PERATIO, ROCE, DIVIDEND, EPS
b. Predictors: (Constant), BOOKVALU, GROWTH,
PERATIO, ROCE, DIVIDEND, EPS
c. Predictors: (Constant), BOOKVALU, GROWTH,
PERATIO, ROCE, EPS

ANOVAd

Sum of
Model Squares df Mean Square F Sig.
1 Regression 4868595 7 695513.565 11.378 .000a
Residual 4829294 79 61130.306
Total 9697889 86
2 Regression 4824957 6 804159.449 13.202 .000b
Residual 4872932 80 60911.656
Total 9697889 86
3 Regression 4758541 5 951708.159 15.607 .000c
Residual 4939348 81 60979.609
Total 9697889 86
a. Predictors: (Constant), BOOKVALU, GROWTH, PAYOUT, PERATIO, ROCE,
DIVIDEND, EPS
b. Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, DIVIDEND, EPS
c. Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, EPS
d. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 60-


Determinants Of Equity Share Prices: An Empirical Study

Coefficientsa

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -225.169 117.251 -1.920 .058
PAYOUT .890 1.054 .072 .845 .401
EPS 5.077 1.455 .377 3.489 .001
DIVIDEND .167 .185 .087 .905 .368
PERATIO 1.085 .622 .142 1.745 .085
GROWTH -2.292 1.111 -.170 -2.063 .042
ROCE 4.736 1.656 .245 2.860 .005
BOOKVALU 120.815 53.909 .227 2.241 .028
2 (Constant) -207.406 115.144 -1.801 .075
EPS 4.748 1.400 .353 3.393 .001
DIVIDEND .190 .182 .099 1.044 .300
PERATIO 1.144 .617 .150 1.855 .067
GROWTH -2.122 1.091 -.158 -1.945 .055
ROCE 4.985 1.627 .258 3.065 .003
BOOKVALU 123.028 53.749 .231 2.289 .025
3 (Constant) -237.576 111.522 -2.130 .036
EPS 5.138 1.350 .382 3.807 .000
PERATIO 1.165 .617 .153 1.888 .063
GROWTH -2.072 1.090 -.154 -1.900 .061
ROCE 5.232 1.610 .271 3.250 .002
BOOKVALU 137.412 51.982 .258 2.643 .010
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 61-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: YEAR 2006

Correlations

payou epss dividend peratio growth roce bookval


payou Pearson Correlatio 1 -.217* .078 .291** -.208 .052 -.002
Sig. (2-tailed) .044 .471 .006 .053 .633 .984
N 87 87 87 87 87 87 87
epss Pearson Correlatio -.217* 1 .540** .063 .036 .346** .513**
Sig. (2-tailed) .044 .000 .564 .737 .001 .000
N 87 87 87 87 87 87 87
dividend Pearson Correlatio .078 .540** 1 .030 -.026 .358** .512**
Sig. (2-tailed) .471 .000 .781 .810 .001 .000
N 87 87 87 87 87 87 87
peratio Pearson Correlatio .291** .063 .030 1 .237* -.014 .099
Sig. (2-tailed) .006 .564 .781 .027 .898 .360
N 87 87 87 87 87 87 87
growth Pearson Correlatio -.208 .036 -.026 .237* 1 .097 .148
Sig. (2-tailed) .053 .737 .810 .027 .373 .171
N 87 87 87 87 87 87 87
roce Pearson Correlatio .052 .346** .358** -.014 .097 1 .274*
Sig. (2-tailed) .633 .001 .001 .898 .373 .010
N 87 87 87 87 87 87 87
bookval Pearson Correlatio -.002 .513** .512** .099 .148 .274* 1
Sig. (2-tailed) .984 .000 .000 .360 .171 .010
N 87 87 87 87 87 87 87
*. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 62-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS YEAR 2006


Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .877a .770 .749 289.0781
2 .877b .770 .752 287.2748
3 .877 c .769 .755 285.7508
4 .877d .768 .757 284.5056
5 .874e .765 .756 285.0996
a. Predictors: (Constant), BOOKVAL, PAYOU, GROWTH,
ROCE, PERATIO, DIVIDEND, EPSS
b. Predictors: (Constant), BOOKVAL, PAYOU, GROWTH,
ROCE, PERATIO, EPSS
c. Predictors: (Constant), BOOKVAL, PAYOU, GROWTH,
PERATIO, EPSS
d. Predictors: (Constant), BOOKVAL, PAYOU, PERATIO,
EPSS
e. Predictors: (Constant), PAYOU, PERATIO, EPSS

ANOVAf

Sum of
Model Squares df Mean Square F Sig.
1 Regression 22046977 7 3149568.089 37.690 .000a
Residual 6601725 79 83566.142
Total 28648702 86
2 Regression 22046556 6 3674426.071 44.524 .000b
Residual 6602145 80 82526.818
Total 28648702 86
3 Regression 22034765 5 4406952.976 53.971 .000c
Residual 6613937 81 81653.543
Total 28648702 86
4 Regression 22011342 4 5502835.513 67.984 .000d
Residual 6637360 82 80943.412
Total 28648702 86
5 Regression 21902315 3 7300771.605 89.821 .000e
Residual 6746387 83 81281.771
Total 28648702 86
a. Predictors: (Constant), BOOKVAL, PAYOU, GROWTH, ROCE, PERATIO, DIVIDEND,
EPSS
b. Predictors: (Constant), BOOKVAL, PAYOU, GROWTH, ROCE, PERATIO, EPSS
c. Predictors: (Constant), BOOKVAL, PAYOU, GROWTH, PERATIO, EPSS
d. Predictors: (Constant), BOOKVAL, PAYOU, PERATIO, EPSS
e. Predictors: (Constant), PAYOU, PERATIO, EPSS
f. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 63-


Determinants Of Equity Share Prices: An Empirical Study

Coefficients a

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -402.480 134.069 -3.002 .004
PAYOU 2.633 1.450 .116 1.816 .073
EPSS 19.879 1.860 .793 10.690 .000
DIVIDEND -2.15E-02 .303 -.005 -.071 .944
PERATIO 5.799 1.518 .232 3.821 .000
GROWTH .656 1.410 .028 .465 .643
ROCE .816 2.135 .023 .382 .703
BOOKVAL 58.956 60.819 .066 .969 .335
2 (Constant) -399.589 126.923 -3.148 .002
PAYOU 2.615 1.418 .115 1.844 .069
EPSS 19.831 1.721 .791 11.523 .000
PERATIO 5.806 1.505 .233 3.857 .000
GROWTH .662 1.399 .028 .473 .637
ROCE .791 2.091 .022 .378 .706
BOOKVAL 57.651 57.606 .064 1.001 .320
3 (Constant) -394.659 125.581 -3.143 .002
PAYOU 2.714 1.387 .120 1.957 .054
EPSS 20.025 1.635 .798 12.251 .000
PERATIO 5.731 1.484 .230 3.862 .000
GROWTH .738 1.377 .031 .536 .594
BOOKVAL 59.418 57.111 .066 1.040 .301
4 (Constant) -387.398 124.303 -3.117 .003
PAYOU 2.475 1.307 .109 1.894 .062
EPSS 19.901 1.611 .793 12.352 .000
PERATIO 5.985 1.400 .240 4.275 .000
BOOKVAL 64.918 55.936 .073 1.161 .249
5 (Constant) -263.512 63.827 -4.129 .000
PAYOU 2.644 1.302 .117 2.031 .045
EPSS 20.870 1.381 .832 15.113 .000
PERATIO 6.050 1.402 .243 4.317 .000
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 64-


Determinants Of Equity Share Prices: An Empirical Study

INDUSTRY –WISE CORRELATIONS

CORRELATION MATRIX: AUTOMOBILE

Correlations

payout eps dividend peratio growth roce bookval


payout Pearson Correlat 1 -.379** -.117 .154 -.166 -.326* -.011
Sig. (2-tailed) .003 .375 .241 .205 .011 .936
N 60 60 60 60 60 60 60
eps Pearson Correlat -.379** 1 .900** .154 .239 .233 .626**
Sig. (2-tailed) .003 .000 .240 .066 .073 .000
N 60 60 60 60 60 60 60
dividend Pearson Correlat -.117 .900** 1 .249 .256* .173 .715**
Sig. (2-tailed) .375 .000 .055 .049 .187 .000
N 60 60 60 60 60 60 60
peratio Pearson Correlat .154 .154 .249 1 .174 .042 .015
Sig. (2-tailed) .241 .240 .055 .183 .748 .908
N 60 60 60 60 60 60 60
growth Pearson Correlat -.166 .239 .256* .174 1 .331** .120
Sig. (2-tailed) .205 .066 .049 .183 .010 .361
N 60 60 60 60 60 60 60
roce Pearson Correlat -.326* .233 .173 .042 .331** 1 -.091
Sig. (2-tailed) .011 .073 .187 .748 .010 .491
N 60 60 60 60 60 60 60
bookval Pearson Correlat -.011 .626** .715** .015 .120 -.091 1
Sig. (2-tailed) .936 .000 .000 .908 .361 .491
N 60 60 60 60 60 60 60
**.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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 65-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS AUTOMOBILE INDUSTRY

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .953a .909 .897 128.1784
2 .953b .908 .898 127.2799
3 .952 c .906 .898 127.4936
a. Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO,
GROWTH, ROCE, EPS, DIVIDEND
b. Predictors: (Constant), BOOKVAL, PERATIO,
GROWTH, ROCE, EPS, DIVIDEND
c. Predictors: (Constant), BOOKVAL, PERATIO, ROCE,
EPS, DIVIDEND

ANOVAd

Sum of
Model Squares df Mean Square F Sig.
1 Regression 8527504 7 1218214.873 74.147 .000a
Residual 854344.1 52 16429.694
Total 9381848 59
2 Regression 8523239 6 1420539.914 87.687 .000b
Residual 858608.7 53 16200.165
Total 9381848 59
3 Regression 8504099 5 1700819.722 104.636 .000c
Residual 877749.6 54 16254.622
Total 9381848 59
a. Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO, GROWTH, ROCE, EPS,
DIVIDEND
b. Predictors: (Constant), BOOKVAL, PERATIO, GROWTH, ROCE, EPS, DIVIDEND
c. Predictors: (Constant), BOOKVAL, PERATIO, ROCE, EPS, DIVIDEND
d. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 66-


Determinants Of Equity Share Prices: An Empirical Study

Coefficientsa

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) 57.184 101.578 .563 .576
PAYOUT .727 1.427 .029 .509 .613
EPS 6.870 2.533 .338 2.712 .009
DIVIDEND 4.835 .785 .798 6.162 .000
PERATIO 4.873 1.895 .119 2.572 .013
GROWTH -1.197 1.178 -.047 -1.016 .314
ROCE -2.428 1.472 -.080 -1.649 .105
BOOKVAL -132.561 33.577 -.258 -3.948 .000
2 (Constant) 89.393 78.949 1.132 .263
EPS 6.089 2.003 .299 3.040 .004
DIVIDEND 5.021 .690 .829 7.280 .000
PERATIO 5.012 1.862 .122 2.692 .009
GROWTH -1.264 1.163 -.049 -1.087 .282
ROCE -2.579 1.431 -.085 -1.802 .077
BOOKVAL -131.752 33.304 -.256 -3.956 .000
3 (Constant) 90.204 79.078 1.141 .259
EPS 6.115 2.006 .300 3.048 .004
DIVIDEND 4.973 .689 .821 7.213 .000
PERATIO 4.759 1.850 .116 2.572 .013
ROCE -3.041 1.369 -.100 -2.221 .031
BOOKVAL -132.957 33.342 -.259 -3.988 .000
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 67-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: CEMENTS

Correlations

payout eps dividend peratio growth roce bookvalu


payout Pearson Correlatio 1 -.130 -.050 .201 -.162 .048 .089
Sig. (2-tailed) .302 .695 .109 .197 .703 .482
N 65 65 65 65 65 65 65
eps Pearson Correlatio -.130 1 .394** -.111 -.009 .153 .242
Sig. (2-tailed) .302 .001 .378 .944 .224 .052
N 65 65 65 65 65 65 65
dividend Pearson Correlatio -.050 .394** 1 -.002 .196 .498** .459**
Sig. (2-tailed) .695 .001 .990 .118 .000 .000
N 65 65 65 65 65 65 65
peratio Pearson Correlatio .201 -.111 -.002 1 .196 -.081 .134
Sig. (2-tailed) .109 .378 .990 .117 .522 .286
N 65 65 65 65 65 65 65
growth Pearson Correlatio -.162 -.009 .196 .196 1 .504** .286*
Sig. (2-tailed) .197 .944 .118 .117 .000 .021
N 65 65 65 65 65 65 65
roce Pearson Correlatio .048 .153 .498** -.081 .504** 1 .381**
Sig. (2-tailed) .703 .224 .000 .522 .000 .002
N 65 65 65 65 65 65 65
bookvalu Pearson Correlatio .089 .242 .459** .134 .286* .381** 1
Sig. (2-tailed) .482 .052 .000 .286 .021 .002
N 65 65 65 65 65 65 65
**. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 68-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS CEMENTS INDUSTRY

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .593a .351 .271 362.1219
2 .592b .351 .284 359.0226
3 .592c .350 .295 356.1585
4 .588d .345 .302 354.4937
5 .585e .342 .310 352.4704
a. Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO,
EPS, GROWTH, DIVIDEND, ROCE
b. Predictors: (Constant), BOOKVAL, PERATIO, EPS,
GROWTH, DIVIDEND, ROCE
c. Predictors: (Constant), PERATIO, EPS, GROWTH,
DIVIDEND, ROCE
d. Predictors: (Constant), PERATIO, EPS, DIVIDEND,
ROCE
e. Predictors: (Constant), PERATIO, EPS, DIVIDEND

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 69-


Determinants Of Equity Share Prices: An Empirical Study

ANOVA f

Sum of
Model Squares df Mean Square F Sig.
1 Regression 4044862 7 577837.418 4.407 .001a
Residual 7474541 57 131132.297
Total 11519403 64
2 Regression 4043365 6 673894.250 5.228 .000b
Residual 7476037 58 128897.196
Total 11519403 64
3 Regression 4035321 5 807064.112 6.362 .000c
Residual 7484082 59 126848.852
Total 11519403 64
4 Regression 3979457 4 994864.168 7.917 .000d
Residual 7539946 60 125665.770
Total 11519403 64
5 Regression 3941043 3 1313681.002 10.574 .000e
Residual 7578360 61 124235.407
Total 11519403 64
a. Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO, EPS, GROWTH, DIVIDEND,
ROCE
b. Predictors: (Constant), BOOKVAL, PERATIO, EPS, GROWTH, DIVIDEND, ROCE
c. Predictors: (Constant), PERATIO, EPS, GROWTH, DIVIDEND, ROCE
d. Predictors: (Constant), PERATIO, EPS, DIVIDEND, ROCE
e. Predictors: (Constant), PERATIO, EPS, DIVIDEND
f. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 70-


Determinants Of Equity Share Prices: An Empirical Study

Coefficientsa

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -31.633 192.675 -.164 .870
PAYOUT -6.52E-02 .610 -.012 -.107 .915
EPS 4.269 1.589 .320 2.686 .009
DIVIDEND 3.148 1.168 .377 2.694 .009
PERATIO 1.449 .975 .175 1.486 .143
GROWTH 1.316 2.379 .076 .553 .582
ROCE -7.431 9.558 -.116 -.778 .440
BOOKVAL 23.974 92.356 .033 .260 .796
2 (Constant) -30.329 190.642 -.159 .874
EPS 4.291 1.563 .322 2.746 .008
DIVIDEND 3.162 1.151 .379 2.747 .008
PERATIO 1.421 .933 .172 1.524 .133
GROWTH 1.397 2.234 .081 .625 .534
ROCE -7.665 9.224 -.120 -.831 .409
BOOKVAL 22.677 90.770 .031 .250 .804
3 (Constant) 8.790 107.883 .081 .935
EPS 4.337 1.540 .325 2.817 .007
DIVIDEND 3.243 1.095 .389 2.963 .004
PERATIO 1.457 .915 .176 1.593 .117
GROWTH 1.461 2.202 .084 .664 .510
ROCE -7.346 9.062 -.115 -.811 .421
4 (Constant) -9.068 103.985 -.087 .931
EPS 4.290 1.531 .322 2.802 .007
DIVIDEND 3.196 1.087 .383 2.939 .005
PERATIO 1.622 .876 .196 1.852 .069
ROCE -4.300 7.777 -.067 -.553 .582
5 (Constant) -52.751 67.219 -.785 .436
EPS 4.346 1.519 .326 2.862 .006
DIVIDEND 2.903 .944 .348 3.074 .003
PERATIO 1.671 .866 .202 1.928 .058
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 71-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: CHEMICALS

Correlations

payout eps dividend peratio growth roce bookvalu


payout Pearson Correlatio 1 -.108 .336** .223 -.033 -.044 .068
Sig. (2-tailed) .357 .003 .055 .781 .709 .565
N 75 75 75 75 75 75 75
eps Pearson Correlatio -.108 1 .484** -.093 .009 .085 -.007
Sig. (2-tailed) .357 .000 .426 .939 .466 .954
N 75 75 75 75 75 75 75
dividend Pearson Correlatio .336** .484** 1 -.134 -.133 .494** .399**
Sig. (2-tailed) .003 .000 .250 .257 .000 .000
N 75 75 75 75 75 75 75
peratio Pearson Correlatio .223 -.093 -.134 1 .166 -.224 -.179
Sig. (2-tailed) .055 .426 .250 .153 .053 .124
N 75 75 75 75 75 75 75
growth Pearson Correlatio -.033 .009 -.133 .166 1 -.001 -.152
Sig. (2-tailed) .781 .939 .257 .153 .995 .192
N 75 75 75 75 75 75 75
roce Pearson Correlatio -.044 .085 .494** -.224 -.001 1 .501**
Sig. (2-tailed) .709 .466 .000 .053 .995 .000
N 75 75 75 75 75 75 75
bookvalu Pearson Correlatio .068 -.007 .399** -.179 -.152 .501** 1
Sig. (2-tailed) .565 .954 .000 .124 .192 .000
N 75 75 75 75 75 75 75
**. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 72-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS CHEMICALS INDUSTRY


Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .450a .202 .119 105.1989
2 .450b .202 .132 104.4230
3 .447c .200 .142 103.8175
4 .438d .192 .145 103.6049
5 .430e .185 .151 103.2922
6 .394f .155 .132 104.4412
a. Predictors: (Constant), BOOKVAL, EPS, PAYOUT,
GROWTH, PERATIO, ROCE, DIVIDEND
b. Predictors: (Constant), BOOKVAL, EPS, PAYOUT,
PERATIO, ROCE, DIVIDEND
c. Predictors: (Constant), BOOKVAL, EPS, PAYOUT,
PERATIO, DIVIDEND
d. Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO,
DIVIDEND
e. Predictors: (Constant), BOOKVAL, PERATIO, DIVIDEND
f. Predictors: (Constant), PERATIO, DIVIDEND

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 73-


Determinants Of Equity Share Prices: An Empirical Study

ANOVAg

Sum of
Model Squares df Mean Square F Sig.
1 Regression 188007.8 7 26858.257 2.427 .028a
Residual 741476.9 67 11066.819
Total 929484.7 74
2 Regression 188001.2 6 31333.534 2.874 .015b
Residual 741483.5 68 10904.168
Total 929484.7 74
3 Regression 185797.5 5 37159.495 3.448 .008c
Residual 743687.2 69 10778.075
Total 929484.7 74
4 Regression 178105.7 4 44526.430 4.148 .005d
Residual 751378.9 70 10733.985
Total 929484.7 74
5 Regression 171965.9 3 57321.975 5.373 .002e
Residual 757518.7 71 10669.278
Total 929484.7 74
6 Regression 144111.8 2 72055.882 6.606 .002f
Residual 785372.9 72 10907.957
Total 929484.7 74
a. Predictors: (Constant), BOOKVAL, EPS, PAYOUT, GROWTH, PERATIO, ROCE,
DIVIDEND
b. Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, ROCE, DIVIDEND
c. Predictors: (Constant), BOOKVAL, EPS, PAYOUT, PERATIO, DIVIDEND
d. Predictors: (Constant), BOOKVAL, PAYOUT, PERATIO, DIVIDEND
e. Predictors: (Constant), BOOKVAL, PERATIO, DIVIDEND
f. Predictors: (Constant), PERATIO, DIVIDEND
g. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 74-


Determinants Of Equity Share Prices: An Empirical Study

Coefficientsa

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -26.949 79.284 -.340 .735
PAYOUT -.556 .517 -.146 -1.077 .285
EPS -7.25E-02 .080 -.129 -.907 .368
DIVIDEND .984 .421 .428 2.340 .022
PERATIO 1.679 .694 .285 2.420 .018
GROWTH -7.14E-03 .293 -.003 -.024 .981
ROCE -1.070 2.453 -.064 -.436 .664
BOOKVAL 55.841 42.429 .175 1.316 .193
2 (Constant) -27.236 77.827 -.350 .727
PAYOUT -.557 .512 -.146 -1.087 .281
EPS -7.27E-02 .079 -.130 -.920 .361
DIVIDEND .986 .413 .429 2.386 .020
PERATIO 1.676 .680 .284 2.464 .016
ROCE -1.080 2.402 -.064 -.450 .654
BOOKVAL 55.964 41.819 .175 1.338 .185
3 (Constant) -31.599 76.771 -.412 .682
PAYOUT -.491 .488 -.129 -1.006 .318
EPS -6.46E-02 .076 -.115 -.845 .401
DIVIDEND .901 .365 .392 2.466 .016
PERATIO 1.698 .675 .288 2.518 .014
BOOKVAL 50.235 39.599 .157 1.269 .209
4 (Constant) -48.575 73.943 -.657 .513
PAYOUT -.345 .456 -.090 -.756 .452
DIVIDEND .714 .290 .311 2.460 .016
PERATIO 1.679 .673 .285 2.495 .015
BOOKVAL 59.812 37.864 .187 1.580 .119
5 (Constant) -56.635 72.950 -.776 .440
DIVIDEND .634 .269 .276 2.353 .021
PERATIO 1.536 .644 .260 2.386 .020
BOOKVAL 60.947 37.720 .191 1.616 .111
6 (Constant) 56.977 19.649 2.900 .005
DIVIDEND .801 .251 .348 3.187 .002
PERATIO 1.393 .645 .236 2.160 .034
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 75-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: PHARMACEUTICALS

Correlations

payout eps dividend peratio growth roce bookvalu


payout Pearson Correlatio 1 -.123 .275** .471** -.112 -.147 .297**
Sig. (2-tailed) .236 .007 .000 .279 .154 .003
N 95 95 95 95 95 95 95
eps Pearson Correlatio -.123 1 .525** .030 -.067 .608** .457**
Sig. (2-tailed) .236 .000 .775 .519 .000 .000
N 95 95 95 95 95 95 95
dividend Pearson Correlatio .275** .525** 1 .146 -.165 .467** .660**
Sig. (2-tailed) .007 .000 .157 .111 .000 .000
N 95 95 95 95 95 95 95
peratio Pearson Correlatio .471** .030 .146 1 .046 -.062 .194
Sig. (2-tailed) .000 .775 .157 .659 .549 .059
N 95 95 95 95 95 95 95
growth Pearson Correlatio -.112 -.067 -.165 .046 1 -.067 -.058
Sig. (2-tailed) .279 .519 .111 .659 .520 .578
N 95 95 95 95 95 95 95
roce Pearson Correlatio -.147 .608** .467** -.062 -.067 1 .167
Sig. (2-tailed) .154 .000 .000 .549 .520 .105
N 95 95 95 95 95 95 95
bookvalu Pearson Correlatio .297** .457** .660** .194 -.058 .167 1
Sig. (2-tailed) .003 .000 .000 .059 .578 .105
N 95 95 95 95 95 95 95
**. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 76-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS PHARMACEUTICALS INDUSTRY


Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .870a .756 .737 163.0839
2 .870b .756 .740 162.1557
3 .870 c .756 .743 161.2473
4 .867d .752 .741 161.6533
a. Predictors: (Constant), BOOKVALU, GROWTH, ROCE,
PERATIO, PAYOUT, EPS, DIVIDEND
b. Predictors: (Constant), BOOKVALU, ROCE, PERATIO,
PAYOUT, EPS, DIVIDEND
c. Predictors: (Constant), BOOKVALU, ROCE, PERATIO,
PAYOUT, EPS
d. Predictors: (Constant), ROCE, PERATIO, PAYOUT, EPS

ANOVAe

Sum of
Model Squares df Mean Square F Sig.
1 Regression 7178678 7 1025525.428 38.559 .000a
Residual 2313883 87 26596.358
Total 9492561 94
2 Regression 7178647 6 1196441.104 45.502 .000b
Residual 2313914 88 26294.483
Total 9492561 94
3 Regression 7178500 5 1435700.038 55.218 .000c
Residual 2314061 89 26000.685
Total 9492561 94
4 Regression 7140701 4 1785175.138 68.314 .000d
Residual 2351861 90 26131.784
Total 9492561 94
a. Predictors: (Constant), BOOKVALU, GROWTH, ROCE, PERATIO, PAYOUT, EPS,
DIVIDEND
b. Predictors: (Constant), BOOKVALU, ROCE, PERATIO, PAYOUT, EPS, DIVIDEND
c. Predictors: (Constant), BOOKVALU, ROCE, PERATIO, PAYOUT, EPS
d. Predictors: (Constant), ROCE, PERATIO, PAYOUT, EPS
e. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 77-


Determinants Of Equity Share Prices: An Empirical Study

Coefficients a

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -198.132 94.480 -2.097 .039
PAYOUT 11.809 1.769 .452 6.676 .000
EPS 13.154 1.540 .665 8.541 .000
DIVIDEND 3.046E-02 .390 .007 .078 .938
PERATIO 5.723 1.425 .244 4.015 .000
GROWTH 2.965E-02 .863 .002 .034 .973
ROCE 2.375 1.656 .105 1.434 .155
BOOKVALU -47.306 45.133 -.081 -1.048 .297
2 (Constant) -197.778 93.381 -2.118 .037
PAYOUT 11.802 1.745 .452 6.762 .000
EPS 13.152 1.530 .665 8.594 .000
DIVIDEND 2.872E-02 .385 .006 .075 .941
PERATIO 5.728 1.408 .245 4.069 .000
ROCE 2.376 1.646 .105 1.443 .152
BOOKVALU -47.181 44.729 -.081 -1.055 .294
3 (Constant) -201.364 79.619 -2.529 .013
PAYOUT 11.836 1.676 .453 7.060 .000
EPS 13.167 1.509 .666 8.725 .000
PERATIO 5.724 1.399 .245 4.092 .000
ROCE 2.423 1.509 .107 1.606 .112
BOOKVALU -45.404 37.657 -.078 -1.206 .231
4 (Constant) -282.541 42.608 -6.631 .000
PAYOUT 11.131 1.575 .426 7.066 .000
EPS 12.271 1.317 .620 9.317 .000
PERATIO 5.713 1.402 .244 4.074 .000
ROCE 2.659 1.500 .118 1.773 .080
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 78-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: TEXTILE

Correlations

payout eps dividend peratio growth roce bookvalu


payout Pearson Correlatio 1 -.099 -.030 .022 .153 -.162 -.046
Sig. (2-tailed) .413 .803 .854 .206 .180 .704
N 70 70 70 70 70 70 70
eps Pearson Correlatio -.099 1 .778** -.113 .096 .664** .262*
Sig. (2-tailed) .413 .000 .353 .430 .000 .029
N 70 70 70 70 70 70 70
dividend Pearson Correlatio -.030 .778** 1 -.081 -.058 .546** .459**
Sig. (2-tailed) .803 .000 .504 .631 .000 .000
N 70 70 70 70 70 70 70
peratio Pearson Correlatio .022 -.113 -.081 1 .206 -.131 -.036
Sig. (2-tailed) .854 .353 .504 .087 .279 .766
N 70 70 70 70 70 70 70
growth Pearson Correlatio .153 .096 -.058 .206 1 .064 -.071
Sig. (2-tailed) .206 .430 .631 .087 .599 .561
N 70 70 70 70 70 70 70
roce Pearson Correlatio -.162 .664** .546** -.131 .064 1 -.154
Sig. (2-tailed) .180 .000 .000 .279 .599 .202
N 70 70 70 70 70 70 70
bookvalu Pearson Correlatio -.046 .262* .459** -.036 -.071 -.154 1
Sig. (2-tailed) .704 .029 .000 .766 .561 .202
N 70 70 70 70 70 70 70
**. 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

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 79-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS TEXTILE INDUSTRY

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .774a .598 .553 89.5228
2 .773b .598 .560 88.8656
3 .772 c .596 .565 88.3641
4 .769d .591 .566 88.2094
a. Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT,
GROWTH, ROCE, EPS, DIVIDEND
b. Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT,
GROWTH, ROCE, EPS
c. Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH,
ROCE, EPS
d. Predictors: (Constant), BOOKVAL, GROWTH, ROCE,
EPS

ANOVAe

Sum of
Model Squares df Mean Square F Sig.
1 Regression 740358.9 7 105765.554 13.197 .000a
Residual 496889.0 62 8014.338
Total 1237248 69
2 Regression 739731.4 6 123288.572 15.612 .000b
Residual 497516.4 63 7897.086
Total 1237248 69
3 Regression 737521.9 5 147504.377 18.891 .000c
Residual 499726.0 64 7808.218
Total 1237248 69
4 Regression 731489.2 4 182872.289 23.503 .000d
Residual 505758.7 65 7780.903
Total 1237248 69
a. Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT, GROWTH, ROCE, EPS,
DIVIDEND
b. Predictors: (Constant), BOOKVAL, PERATIO, PAYOUT, GROWTH, ROCE, EPS
c. Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH, ROCE, EPS
d. Predictors: (Constant), BOOKVAL, GROWTH, ROCE, EPS
e. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 80-


Determinants Of Equity Share Prices: An Empirical Study

Coefficients a

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -164.599 64.268 -2.561 .013
PAYOUT -.114 .129 -.075 -.885 .380
EPS 2.246 1.140 .292 1.970 .053
DIVIDEND .197 .705 .043 .280 .781
PERATIO .121 .245 .041 .495 .622
GROWTH 2.753 .812 .294 3.389 .001
ROCE -4.895 2.514 -.255 -1.947 .056
BOOKVAL 131.238 25.896 .558 5.068 .000
2 (Constant) -171.718 58.583 -2.931 .005
PAYOUT -.107 .126 -.070 -.853 .397
EPS 2.419 .952 .315 2.541 .014
PERATIO .128 .242 .044 .529 .599
GROWTH 2.701 .785 .288 3.440 .001
ROCE -4.654 2.345 -.242 -1.985 .052
BOOKVAL 134.957 22.062 .574 6.117 .000
3 (Constant) -168.475 57.933 -2.908 .005
PAYOUT -.110 .125 -.072 -.879 .383
EPS 2.403 .946 .313 2.540 .014
GROWTH 2.792 .762 .298 3.666 .001
ROCE -4.758 2.323 -.248 -2.048 .045
BOOKVAL 134.660 21.931 .573 6.140 .000
4 (Constant) -177.166 56.983 -3.109 .003
EPS 2.373 .944 .309 2.514 .014
GROWTH 2.687 .751 .287 3.578 .001
ROCE -4.452 2.293 -.232 -1.941 .057
BOOKVAL 136.074 21.833 .579 6.232 .000
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 81-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: MISCELLANEOUS

Correlations

payout eps dividend peratio growth roce bookvalu


payout Pearson Correlation 1 -.151 .276* .203 -.306* .602** .087
Sig. (2-tailed) .211 .021 .092 .010 .000 .476
N 70 70 70 70 70 70 70
eps Pearson Correlation -.151 1 .588** -.167 .192 .104 .480**
Sig. (2-tailed) .211 .000 .167 .111 .391 .000
N 70 70 70 70 70 70 70
dividend Pearson Correlation .276* .588** 1 -.061 .069 .166 .268*
Sig. (2-tailed) .021 .000 .617 .573 .170 .025
N 70 70 70 70 70 70 70
peratio Pearson Correlation .203 -.167 -.061 1 -.062 .219 -.021
Sig. (2-tailed) .092 .167 .617 .612 .068 .865
N 70 70 70 70 70 70 70
growth Pearson Correlation -.306* .192 .069 -.062 1 -.061 -.018
Sig. (2-tailed) .010 .111 .573 .612 .618 .881
N 70 70 70 70 70 70 70
roce Pearson Correlation .602** .104 .166 .219 -.061 1 .053
Sig. (2-tailed) .000 .391 .170 .068 .618 .664
N 70 70 70 70 70 70 70
bookvalu Pearson Correlation .087 .480** .268* -.021 -.018 .053 1
Sig. (2-tailed) .476 .000 .025 .865 .881 .664
N 70 70 70 70 70 70 70
*. 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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 82-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS MISCELLANEOUS INDUSTRY

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .641a .411 .345 385.4094
2 .641b .411 .355 382.3881
3 .633c .401 .354 382.8139
4 .626d .392 .354 382.6930
5 .619e .383 .355 382.4791
a. Predictors: (Constant), BOOKVALU, GROWTH,
PERATIO, ROCE, DIVIDEND, PAYOUT, EPS
b. Predictors: (Constant), BOOKVALU, GROWTH,
PERATIO, ROCE, PAYOUT, EPS
c. Predictors: (Constant), BOOKVALU, PERATIO, ROCE,
PAYOUT, EPS
d. Predictors: (Constant), BOOKVALU, PERATIO, ROCE,
EPS
e. Predictors: (Constant), PERATIO, ROCE, EPS

ANOVAf

Sum of
Model Squares df Mean Square F Sig.
1 Regression 6435284 7 919326.250 6.189 .000a
Residual 9209504 62 148540.390
Total 15644788 69
2 Regression 6432885 6 1072147.533 7.332 .000b
Residual 9211903 63 146220.679
Total 15644788 69
3 Regression 6265814 5 1253162.829 8.551 .000c
Residual 9378974 64 146546.466
Total 15644788 69
4 Regression 6125285 4 1531321.132 10.456 .000d
Residual 9519503 65 146453.899
Total 15644788 69
5 Regression 5989631 3 1996543.573 13.648 .000e
Residual 9655157 66 146290.261
Total 15644788 69
a. Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, DIVIDEND,
PAYOUT, EPS
b. Predictors: (Constant), BOOKVALU, GROWTH, PERATIO, ROCE, PAYOUT, EPS
c. Predictors: (Constant), BOOKVALU, PERATIO, ROCE, PAYOUT, EPS
d. Predictors: (Constant), BOOKVALU, PERATIO, ROCE, EPS
e. Predictors: (Constant), PERATIO, ROCE, EPS
f. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 83-


Determinants Of Equity Share Prices: An Empirical Study

Coefficients a

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -149.592 218.262 -.685 .496
PAYOUT -3.410 3.430 -.157 -.994 .324
EPS 5.181 2.208 .378 2.347 .022
DIVIDEND -2.28E-02 .180 -.018 -.127 .899
PERATIO 7.168 2.354 .311 3.045 .003
GROWTH -2.230 2.145 -.110 -1.040 .303
ROCE 6.294 2.322 .365 2.711 .009
BOOKVALU 85.033 80.696 .122 1.054 .296
2 (Constant) -145.408 214.073 -.679 .499
PAYOUT -3.632 2.926 -.167 -1.241 .219
EPS 4.998 1.660 .365 3.011 .004
PERATIO 7.166 2.336 .311 3.068 .003
GROWTH -2.261 2.115 -.111 -1.069 .289
ROCE 6.370 2.227 .369 2.861 .006
BOOKVALU 86.574 79.153 .124 1.094 .278
3 (Constant) -217.989 203.245 -1.073 .288
PAYOUT -2.753 2.812 -.127 -.979 .331
EPS 4.761 1.647 .347 2.891 .005
PERATIO 7.153 2.338 .310 3.059 .003
ROCE 6.092 2.214 .353 2.752 .008
BOOKVALU 91.923 79.083 .132 1.162 .249
4 (Constant) -238.084 202.143 -1.178 .243
EPS 5.299 1.552 .386 3.415 .001
PERATIO 7.095 2.337 .308 3.036 .003
ROCE 4.739 1.730 .275 2.740 .008
BOOKVALU 74.028 76.918 .106 .962 .339
5 (Constant) -65.329 92.908 -.703 .484
EPS 6.018 1.359 .439 4.427 .000
PERATIO 7.253 2.330 .315 3.113 .003
ROCE 4.717 1.728 .273 2.729 .008
a. Dependent Variable: AVGPRICE

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 84-


Determinants Of Equity Share Prices: An Empirical Study

CORRELATION MATRIX: AGGREGATE OF ALL INDUSTIES

Correlations

payout eps dividend peratio growth roce bookval


payout Pearson Correla 1 -.048 .044 .133** -.040 .004 .019
Sig. (2-tailed) .314 .365 .006 .402 .931 .693
N 435 435 435 435 435 435 435
eps Pearson Correla -.048 1 .192** -.045 .044 .081 .107*
Sig. (2-tailed) .314 .000 .347 .361 .093 .025
N 435 435 435 435 435 435 435
dividend Pearson Correla .044 .192** 1 .003 .040 .289** .370**
Sig. (2-tailed) .365 .000 .958 .405 .000 .000
N 435 435 435 435 435 435 435
peratio Pearson Correla .133** -.045 .003 1 .105* .020 .051
Sig. (2-tailed) .006 .347 .958 .028 .670 .290
N 435 435 435 435 435 435 435
growth Pearson Correla -.040 .044 .040 .105* 1 .046 .026
Sig. (2-tailed) .402 .361 .405 .028 .342 .585
N 435 435 435 435 435 435 435
roce Pearson Correla .004 .081 .289** .020 .046 1 .202**
Sig. (2-tailed) .931 .093 .000 .670 .342 .000
N 435 435 435 435 435 435 435
bookval Pearson Correla .019 .107* .370** .051 .026 .202** 1
Sig. (2-tailed) .693 .025 .000 .290 .585 .000
N 435 435 435 435 435 435 435
**.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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 85-


Determinants Of Equity Share Prices: An Empirical Study

REGRESSION RESULTS AGGREGATE INDUSTRY

Model Summary

Adjusted Std. Error of


Model R R Square R Square the Estimate
1 .583a .339 .329 290.0709
2 .582b .339 .330 289.7461
3 .581c .338 .330 289.6770
a. Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH,
EPS, PERATIO, ROCE, DIVIDEND
b. Predictors: (Constant), BOOKVAL, PAYOUT, EPS,
PERATIO, ROCE, DIVIDEND
c. Predictors: (Constant), BOOKVAL, EPS, PERATIO,
ROCE, DIVIDEND

ANOVAd

Sum of
Model Squares df Mean Square F Sig.
1 Regression 18454963 7 2636423.250 31.333 .000a
Residual 35928266 427 84141.139
Total 54383229 434
2 Regression 18451440 6 3075239.959 36.631 .000b
Residual 35931789 428 83952.778
Total 54383229 434
3 Regression 18384641 5 3676928.153 43.818 .000c
Residual 35998588 429 83912.793
Total 54383229 434
a. Predictors: (Constant), BOOKVAL, PAYOUT, GROWTH, EPS, PERATIO, ROCE,
DIVIDEND
b. Predictors: (Constant), BOOKVAL, PAYOUT, EPS, PERATIO, ROCE, DIVIDEND
c. Predictors: (Constant), BOOKVAL, EPS, PERATIO, ROCE, DIVIDEND
d. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 86-


Determinants Of Equity Share Prices: An Empirical Study

Coefficientsa

Standardi
zed
Unstandardized Coefficien
Coefficients ts
Model B Std. Error Beta t Sig.
1 (Constant) -360.676 54.144 -6.661 .000
PAYOUT -.250 .277 -.036 -.901 .368
EPS .271 .165 .066 1.636 .102
DIVIDEND .279 .093 .132 2.990 .003
PERATIO 2.040 .469 .174 4.349 .000
GROWTH -.111 .541 -.008 -.205 .838
ROCE 5.552 .928 .248 5.986 .000
BOOKVAL 191.844 23.455 .349 8.179 .000
2 (Constant) -362.254 53.532 -6.767 .000
PAYOUT -.247 .277 -.035 -.892 .373
EPS .269 .165 .066 1.632 .103
DIVIDEND .279 .093 .132 2.989 .003
PERATIO 2.030 .466 .173 4.358 .000
ROCE 5.546 .926 .247 5.989 .000
BOOKVAL 191.836 23.428 .349 8.188 .000
3 (Constant) -369.038 52.976 -6.966 .000
EPS .277 .165 .067 1.681 .094
DIVIDEND .275 .093 .130 2.949 .003
PERATIO 1.975 .462 .169 4.279 .000
ROCE 5.555 .926 .248 6.000 .000
BOOKVAL 191.853 23.423 .349 8.191 .000
a. Dependent Variable: AVGPRICE

Excluded Variablesc

Collinearit
y
Partial Statistics
Model Beta In t Sig. Correlation Tolerance
2 GROWTH -.008a -.205 .838 -.010 .982
3 GROWTH -.006b -.156 .876 -.008 .985
PAYOUT -.035b -.892 .373 -.043 .978
a. Predictors in the Model: (Constant), BOOKVAL, PAYOUT, EPS, PERATIO, ROCE,
DIVIDEND
b. Predictors in the Model: (Constant), BOOKVAL, EPS, PERATIO, ROCE,
DIVIDEND
c. Dependent Variable: AVGPRICE

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 87-


Determinants Of Equity Share Prices: An Empirical Study

INTERPRETATION OF REGRESSION RESULTS: YEAR-WISE

Table 3
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

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 88-


Determinants Of Equity Share Prices: An Empirical Study

INTERPRETATION OF REGRESSION RESULTS:


INDUSTRY WISE
Table 4
Industry Payo EPS DIV P/E R ROCE Growt BV AdjR F-
2
ut h value
Automobile N Y Y Y N N N .897 104.63
6
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

Miscellaneo N Y N Y Y N N .345 13.648


us
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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 89-


Determinants Of Equity Share Prices: An Empirical Study

CHAPTER V
CONCLUSION

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 90-


Determinants Of Equity Share Prices: An Empirical Study

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.

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 91-


Determinants Of Equity Share Prices: An Empirical Study

CHAPTER V1
BIBLIOGRAPHY

&
ANNEXTURES

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 92-


Determinants Of Equity Share Prices: An Empirical Study

Bibliography
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⇒ 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:
¾ Investments- Bodie, Kane, Marcus
¾ Modern Portfolio Theory And Investment Analysis- Elton & Gruber
¾ Security Analysis And Portfolio Management - Prasanna Chandra
¾ Econometrics – Ashwath Damodaran
¾ Statistics- S.C Gupta

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 93-


Determinants Of Equity Share Prices: An Empirical Study

Software Used:
⇒ Prowess
⇒ Capitaline
⇒ SPSS 10
⇒ MS Excel

WEBLIOGRAPHY:
⇒ www.jstor.org
⇒ www.nseindia.com
⇒ www.icfaipress.org
⇒ www.bseindia.com
⇒ www.capitaline.com

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 94-


Determinants Of Equity Share Prices: An Empirical Study

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

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 95-


Determinants Of Equity Share Prices: An Empirical Study

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

Rakesh D, MBA 2005-07,M.P Birla Institute Of Management, Bangalore - 96-