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A RESEARCH PROJECT ON

THE INDIAN CORPORATE SECTOR : AN

EMPIRICAL STUDY

For Bangalore University

Submitted by

RAKESH D

REG NO: 04XQCM6070

Prof. B V RUDRAMURTHY

Associate, Bharatiya Vidya Bhavan

#43.RACE COURSE ROAD,

BANGALORE-560001

Determinants Of Equity Share Prices: An Empirical Study

DECLARATION

&

CERTIFICATES

Determinants Of Equity Share Prices: An Empirical Study

DECLARATION

is the result of my own research work carried out under the guidance and

Management Bangalore.

I further declare that this dissertation has not been submitted earlier to

Place: Bangalore

Date: RAKESH D

Determinants Of Equity Share Prices: An Empirical Study

PRINCIPAL’S CERTIFICATE

Study” is the result of research work carried out by Mr. Rakesh D bearing

Place: Bangalore

Date: Dr N.S. MALAVALLI

Principal

Determinants Of Equity Share Prices: An Empirical Study

GUIDE’S CERTIFICATE

Mr. RAKESH D bearing the Reg no. 05XQCM6070 under my guidance and

supervision.

Place: Bangalore

Date: Prof. Dr: T. V. N RAO

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.

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.

MPBIM who have helped me in completing my project. I have gained a lot of

knowledge throughout the course of carrying out this project.

have helped me in completing this project by providing me with the

psychological and academic support.

RAKESH D

(Reg No. 05XQCM6070)

Determinants Of Equity Share Prices: An Empirical Study

INDEX

CONTENT PAGE NO

EXECUTIVE SUMMARY…………………………………………..10

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

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

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

OF RESULTS

4.1 Descriptive Analysis ……………………………………….….50

4.2 Correlation Matricies & Regression Tables……....................60

4.4 Interpretation of Results………………………………………88

Determinants Of Equity Share Prices: An Empirical Study

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.

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.

Determinants Of Equity Share Prices: An Empirical Study

CHAPTER I

INTRODUCTION

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.

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

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.

Determinants Of Equity Share Prices: An Empirical Study

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.

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

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.

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.

Determinants Of Equity Share Prices: An Empirical Study

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.

Determinants Of Equity Share Prices: An Empirical Study

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.

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

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.

• Profit margin on sales

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.

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.

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.

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.

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

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.

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.

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.

Determinants Of Equity Share Prices: An Empirical Study

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

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.

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 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

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.

Determinants Of Equity Share Prices: An Empirical Study

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

length and breadth of those cycles can be irregular. This recurring pattern of recession

and recovery is called business cycle.

performance of different industry groups might be expected to vary.

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

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.

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

• Financial average

Determinants Of Equity Share Prices: An Empirical Study

CHAPTER II

LITERATURE REVIEW

&

PROBLEM IDENTIFICATION

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.

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.

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.

Determinants Of Equity Share Prices: An Empirical 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

General Engineering 28

Cotton Textile 23

Chemical 33

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.

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.

The forces of demand and supply in the market determine the market price of the share.

Where PH is the highest market price, PL is the lowest market price during the year,

which relates to‘t’ period.

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:

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

Dividend

Determinants Of Equity Share Prices: An Empirical Study

Or

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.

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

Dividend Payout shows the percentage share of the net profits after taxes and preference

dividend paid out as dividend to equity shareholders. It can be calculated by dividing the

total dividend paid to the equity shareholders by the total profits/ earnings available for

them. Alternatively, it can be found out by dividing DPS by EPS. . This predicts direct

Determinants Of Equity Share Prices: An Empirical Study

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.

Or

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:

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

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.

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,

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,

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

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.

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.

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.

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.

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.

independent variables with dependent variable is formed:

Where,

BV = Book Value,

DY=Dividend Yield.

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.

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.

Y = bo +b1X1+b2X2 +...+bnXn

where,

Y = Dependent Variable,

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.

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.

The average price of the share derived from the financial year high and low has been

considered as market price for this study.

Where, High Price is Highest market price during the financial year and Low Price

Lowest market price during the financial year

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.

Determinants Of Equity Share Prices: An Empirical Study

It shows the extent to which the dividend per share is protected by the earnings of the

company

DC= EPS

DPS

Growth (GH)

G= St-St-1

St-1

Using the definition given above of EPS the P/E ratio is defined as under;

This ratio enables an investor to make an approximate calculation of the time required to

cover his investment in a company’s stock.

This is the return earned by an equity shareholder by way of dividends. Dividend Yield

(DY) is computed as:

Market pricej,t

Determinants Of Equity Share Prices: An Empirical Study

MP is average price of the sate derived from the financial year high and

low for company.

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

Indian corporate sector?

explanatory variables?

Determinants Of Equity Share Prices: An Empirical Study

Chapter III

RESEARH

METHODOLOGY

Determinants Of Equity Share Prices: An Empirical Study

RESEARCH METHODOLOGY

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.

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

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.

The linear multiple regression approach has been applied primarily to minimize the

problem of multicollinearity. This technique of multivariate analysis was selected

because it is the most appropriate tool evaluating the individual and combined effect of

set of independent variables on dependent variable. The significance of coefficient of

Determinants Of Equity Share Prices: An Empirical Study

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.

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.

The forces of demand and supply in the market determine the market price of the share.

Where PH is the highest market price, PL is the lowest market price during the year,

which relates to‘t’ period.

It refers to the book value of total shareholders fund. It is extracted from the balance

sheet of the companies.

Determinants Of Equity Share Prices: An Empirical Study

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.

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

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.

Determinants Of Equity Share Prices: An Empirical Study

Or

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:

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

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

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

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

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.

Determinants Of Equity Share Prices: An Empirical Study

CHAPTER IV

ANALYSIS AND

INTERPRETATION

OF DATA

Determinants Of Equity Share Prices: An Empirical Study

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.

Used.

Correlation Analysis.

Is a statistical tool we can use to describe the degree to which one variable is linearly

related to another often correlation analysis is used in conjunction with regression

analysis to measure how well the regression line explains the variation of dependent

variable, Y. correlation can also be used by itself, however, to measure the degree of

association between two variables.

Statisticians have developed two measures for describing correlations between two

variables.

Coefficient of determination( r2)

Coefficient of correlation

Regression Model :

The regression analysis is concerned with the study of dependence of one variable, the

dependent variable on one or more other variables, the explanatory variables, with a view

to estimating and/or predicting the population mean or average value of former in terms

of the known or fixed ( in repeated sampling) values of the latter.

The linear multiple regression approach has been selected to measure the

combined effects of explanatory variables on dependent variable. The general form of

multiple regression estimating equation is:

Determinants Of Equity Share Prices: An Empirical Study

X1,X2,X3, =Independent Variables,

α =Regression Constant, and

B1, B2,. Bn =Regression Coefficients of independent variables.

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

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

computing ‘t-values’. Also with a view to account for loss of degree of freedom resulting

from inclusion of additional variables, the Adjusted R2 was computed. The ‘F’ value was

also computed to test the significance of the R2 with ‘F’ distribution at 1 and 5%

Determinants Of Equity Share Prices: An Empirical Study

significance level. The overall significance of regression equation was tested with the

help of F-values

1. R2 and adjusted R2

An important property of R2 is that it is a non decreasing function of the number of

explanatory variables or regressors present in the model: as the number of regressors

increases, R2 almost invariably increases and never decreases.

R2 = ESS Or R2 = 1 - RSS

TSS TSS

Where,

RSS is Residual Sum of Squares

TSS is Total Sum of Squares

ESS is Explained Sum of Squares

2. F-Test

An F-test is any statistical test in which the test statistic has an F-distribution if

the null hypothesis is true. A great variety of hypotheses in applied statistics are tested by

F-tests. The hypothesis is that the means of multiple normally distributed populations, all

having the same standard deviation, are equal. This is perhaps the most well-known of

hypotheses tested by means of an F-test, and the simplest problem in the analysis of

variance (ANOVA).

The F-distribution is formed by the ratio of two independent chi-square variables

divided by their respective degrees of freedom. Since F is formed by chi-square, many of

the chi-square properties carry over to the F distribution.

• The F-values are all non-negative

• The distribution is non-symmetric

• The mean is approximately 1

Determinants Of Equity Share Prices: An Empirical Study

• There are two independent degrees of freedom, one for the numerator,

and one for the denominator.

• There are many different F distributions, one for each pair of degrees of

freedom.

NOTE: It is found that there is a high correlation between size (gross block) and

market capitalization at 5% level of significance. To avoid the problem of

multicollinearity both the variables are excluded from the research for the further

analysis

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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..

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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

EPS, Dividend and P/E ratio are the highly significant determinants for auto industry with

positive t- values. . The coefficient of multiple determination, (R2), obtained from the

equations indicate that variables included in the equation could explain 87.9 % of the

dependent variable share price. The computed F-value 74.147 is found to be significant at

5% level. The variables Dividend and Payout are found to be insignificant with negative

t-values.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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

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

EPS and Dividend are the highly significant determinants for cement industry with

positive t- values. . The coefficient of multiple determination, (R2), obtained from the

equations indicate that variables included in the equation could explain 27.1 % of the

dependent variable share price. The computed F-value 4.407 is found to be significant at

5% level. The variables Dividend and Payout are found to be insignificant with negative

t-values.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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

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

Dividend and PE ratio are the significant determinants for cement industry with positive

t- values. . The coefficient of multiple determination, (R2), obtained from the equations

indicate that variables included in the equation could explain 11.9 % variation of the

dependent variable share price. The computed F-value 6.606 is found to be significant at

5% level. The variables Growth, ROCE and EPS are found to be insignificant with

negative t-values.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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

PE ratio, EPS and Payout are the significant determinants of share price for pharmacy

industry with positive t- values. . The coefficient of multiple determination, (R2),

obtained from the equations indicate that variables included in the equation could explain

73.7 % variation of the dependent variable share price. The computed F-value 38.559 is

found to be significant at 5% level. The variables book value is found to be insignificant

with negative t-values.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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

EPS, book value and Growth are the significant determinants of share price for textiles

industry with positive t- values. . The coefficient of multiple determination, (R2),

obtained from the equations indicate that variables included in the equation could explain

55.3 % variation of the dependent variable share price. The computed F-value 13.197 is

found to be significant at 5% level. The variables Dividend, Payout and ROCE are found

to be insignificant with negative t-values.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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

EPS, PE ratio and ROCE are the significant determinants of share price for textiles

industry with positive t- values. The coefficient of multiple determination, (R2), obtained

from the equations indicate that variables included in the equation could explain 35.5 %

variation of the dependent variable share price. The computed F-value 6.819 is found to

be significant at 5% level. The variables Dividend, Payout and Growth are found to be

insignificant with negative t-values.

Determinants Of Equity Share Prices: An Empirical Study

Correlations

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.

Determinants Of Equity Share Prices: An Empirical Study

Model Summary

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

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

Determinants Of Equity Share Prices: An Empirical Study

Table 3

Year Payout EPS DIV P/E R ROCE Growth BV Adj r 2 F-

Value

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.

Determinants Of Equity Share Prices: An Empirical Study

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

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.

Determinants Of Equity Share Prices: An Empirical Study

CHAPTER V

CONCLUSION

Determinants Of Equity Share Prices: An Empirical Study

CONCLUSION

variables namely, dividend per share, earning per share , price earning ratio, book

value, return on capital employed, growth and payout ratio on market price of

shares from the year 2002 to 2006 in the post reform era of liberalization. The

relationship between independent variables and dependent variable of 87 companies

(randomly selected) of six industries are studied.

The results reveal that Earnings Per Share is the only determinant which is

common in both the analysis (year wise and industry wise). Therefore EPS is an

important determinant of share price. If look particularly into the year wise

analysis- Book value also influences the share price. And looking into industry wise

it is found that Price earning ratio also influences significantly on the dependent

variable.

The other independent variables like Return on capital employed and

dividend per share remain insignificant but with a positive value. They are not

significant determinants of share price.

The regression analysis clearly depicts that Growth and payout remains most

insignificant determinant with negative value. They do not have any influence on the

share price. Overall the R2 ranges from 13 % to 56 % (except for automobile

industry). It means less than 50 % of variation in dependent variable is explained by

these independent variables.

Finally it can be concluded that apart from the above independent variables

there are some other factors which influences the market price of the share. Those

factors may be macroeconomic factors like government policy, federal bank policy,

central bank interest rates, business cycle, demand and supply shocks, GDP,

inflation, exchange rates. Etc.

Determinants Of Equity Share Prices: An Empirical Study

CHAPTER V1

BIBLIOGRAPHY

&

ANNEXTURES

Determinants Of Equity Share Prices: An Empirical Study

Bibliography

Journal References:

⇒ Shefali Sharma & Balwinder, (2006),”Determinants of equity share

prices in the Indian corporate sector”, The ICFAI Journal of applied

finance, Vol. 12 No.4 pp 21-31.

Indian companies”, The ICFAI Journal of applied finance, Vol.12, No.9

pp 39-50.

India”, The ICFAI Journal of applied finance, Vol. 9, No.7 pp 35-40.

price variability”, The Journal of Business, vol. 39, No. 1, pp. 19-23

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

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

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

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

STUDY

AUTOMOBILES 12

CEMENTS 13

CHEMICALS 15

PHARMACEUTICALS 19

TEXTILE & COTTON 14

MISCELLANEOUS 14

TOTAL 87

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