Analysis of internal factors affecting share prices:

Abstract

The stock market plays an important role in economic progress of any nation and share price is a key aspect in stock market. Share price is the value of single share of a company's multiple sellable stocks. It represents not only present value of a company, but also the growth. However, the stock market is dependent on several factors and hence, it fluctuates and predicting becomes much more complicated. This study aimed to determine internal factors that influence share price of 24 diversified financial companies listed in Colombo Stock Exchange in the period from 2014 to 2019. Impacts of six variables namely return on assets, return on equity, book value per share, earnings per share, dividend per share and dividend yield on market price of shares in the respective sector were studied. Yeo and Johnson power transformation was used to transform the data and then used for model fitting. The panel data models: ordinary least square with common effect model; fixed effects model; and random effects model were tested. Among these models, the best model was fixed effects model. The results indicated that return on assets, return on equity, book value per share, earnings per share and dividend per share have positive relationship with share price and dividend yield has negative relationship with share price. Further, all these factors have significant impact on market price of share and dividend yield has higher influence whereas book value per share has lower influence on share price. Results of this study implies that investors can take most advantageous investment decisions and be guaranteed favorable returns if they take into consideration of these significant determinants In the future, it can be aimed to complement a study in various sectors with in internal and external variables of and a large timeframe. This would provide better insights on the determinants of share price