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Page 1: Micro Economic Determinants Changed Final Acepted

DETERMINANTS OF EQUITY SHARE PRICES IN INDIAN

CORPORATE SECTOR-AN EMPIRICAL STUDY Dr.Balwinder Singh*

Shefali Sharma**

Abstract

The present study attempts to examine the empirical relationship of explanatory vari-

ables namely, dividend per share, earnings per share, price-earnings ratio, book value per share,

size, cover, return on capital employed and payout ratio on market price of the shares in the

post-reform era of liberalization. The relationship between independent and dependent variables

of 160 companies is studied over a period of five years ranging from 2001 to 2005.The results

revealed that Earnings per share and book value per share are important determinant of share

price as they are an index of the sound financial position of the companies. Dividend per share

is important determinant 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 the sharehold-

ers as depicted by payout ratio and cover. Price-earnings ratio too showed investors’ expecta-

tion about the growth in the firm’s earnings that varied from industry to industry.

Keywords: Determinants; Fundamental variables; Share Price; Financial reforms.

*Reader, Department of Commerce & Business Management, Guru Nanak Dev University, Amritsar. Punjab-143005.

E-mail: [email protected]

**Junior Research Fellow, Department of Commerce & Business Management, Guru Nanak Dev University, Amritsar.

Punjab-143005. E-mail: [email protected]

Introduction

Share price is the most important indicator readily available to the investors for their de-

cision to invest or not in a particular share. Theories suggest that share price changes are associ-

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ated 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 [Wilcox (1984),

Rappoport (1986), Downs (1991)].

Investigations of share price changes appear to yield evidence that changes in fundamen-

tal variable(s) should jointly bring about changes in share prices both in developed and emerg-

ing markets. However, the actual fundamental factors found to be relevant may vary from mar-

ket 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 (Ariff et al., 1994). 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 price changes in the short and the long-run

(Ariff and Khan, 2000).

Knowledge of relative influence of fundamental factors on equity share prices is helpful

to corporate, management, government and investors (Chandra, 1981). To the corporate man-

agement 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 use-

ful in the formulation of management policies relating to dividend payment, bonus declaration,

right issues, etc. Investors can also form better judgments and make intelligent and rational in-

vestment decisions (Sachdeva, 1994, p.5). Investors in shares usually make constant use of

these various variables for 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 per-

formance of equity shares in market (Dixit, 1986, p.86).

Due to liberalization, privatization and globalization, Indian capital market has wit-

nessed considerable changes in 90’s and 2000’s. As a consequence, the relative importance of

the variables determining the share prices has also undergone some changes. All these devel-

opments have increased the importance of striving towards the basic goals of financial man-

agement i.e., maximizing the price of firm’s common stock and therefore shareholders wealth

(Vanhorne, 1978, p.7). For a firm whose equity shares are actively traded on the stock mar-

ket, the wealth of equity shareholder is reflected in its market value. Hence, the goal of finan-

cial management for such firms should be to maximize the market value of equity shares

(Chandra, 1986, p.6). The decade of 1990’s 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 (Khanna, 1999; Pal, 2001). The financial sector also experienced

deregulatory initiatives in the form of unfreezing of interest rate controls and public policy

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initiatives to encourage the growth of financial markets – for both equity and debt (bonds) in-

struments. Decisions located within the boundaries of the firm therefore, play a greater role in

driving the equity share prices, under the new policy regime (Kakani et al., 2001).

It is important to study factors effecting share prices in India after introduction of re-

forms, which emphasized more towards openness to foreign trade and competition. The ob-

jective of this study is to investigate the joint effect of fundamental factors on equity share

prices of Indian companies. Further discussion has been divided into four sections. Section

one appraises the review of literature. Section two describes the database and research

methodology designed for the study. Section three deals with explanation of company perfor-

mance variables. Section four shows analysis and interpretation of regression Results. Finally,

section five concludes the findings.

Section – I

Review of Literature

A number of empirical studies have been conducted in India and abroad on the relation-

ship between equity share price and fundamental variables These studies have been reviewed

to identify the gap that exists in the literature in this area. The review has been divided into

two parts namely; Indian studies and foreign studies.

Indian studies:

Desai (1965) examined the impact of dividend per share, retained earnings per share

and earnings per share on the market price per share by using linear regression model. He

used a sample of 31 Indian companies during the year 1960. The results indicated that current

dividends were the best explanatory variable for stock prices while earnings and retained

earnings were found to be satisfactorily insignificant. Srivastava (1966) conducted a study on

six industries namely; cotton-textile, tea, sugar, electric, coal and paper for the year 1961. The

study observed that dividend had a strong impact but retained earnings had no significant in-

fluence on share prices in India.

Ojha (1973) conducted a study of cotton-textile industry using a sample of 14 compa-

nies for the year 1961. He observed that dividend had the most powerful effect on share price

that was two times higher than retained earnings. Chandra (1981) conducted a study relating

to two groups of companies; ‘across the board group’ which consisted of 50 shares drawn at

random from a group of 110 shares of firms in all the industries except banking, insurance,

and textile and 30 shares of ‘cotton-textile group’. The main findings of the study indicate

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that returns, growth and size, had a positive influence on share price while risk and leverage

had no influence on share price.

Zahir and Khanna (1982) conducted a study of 62 private sector giants for two years,

i.e., 1976-77 and 1977-78. The results indicated that dividend per share had significant impact

on share prices. The coefficient of cover and price earning ratio was insignificant whereas

yield was highly significant in both the years. Dixit (1983) conducted a study of 42 compa-

nies for a period of 20 years i.e. 1961-1982. Dividend and earnings turned out to be most sig-

nificant predicative variables whereas growth and leverage appeared to be redundant vari-

ables. Return on Investment had comparatively weak influence on share price. Bal Krishan

(1984) applied correlation and multiple linear regression techniques on 22 firms for the year

1982-83. Out of five variables, dividend per share turned out to be the most significant deter-

minant of market price whereas earning per share and cover remained insignificant.

Malhotra (1987) conducted a study of four industries, namely general engineering, cot-

ton textile, food products and paper covering a period of four years from 1982 to 1985. Divi-

dend per share and earnings per share had positive and significant influence on market price

of equity share. Yield and cover influenced market price negatively and significantly in most

of the years. Singh, A. (1995) undertook an empirical study of 120 companies for a period of

ten years from 1983 to 1992. Dividend per share and earnings per share had positive and sig-

nificant impact on share price. Growth and return on investment had weak influence whereas

bonus issue had a positive and significant effect on share price. Performance and growth were

the broad indicators of quality of management.

Lalwani, M. (1997) studied three years period ending March of 1995, 1996 and 1997

for a panel of 117 major stocks listed at the National Stock Exchange (NSE). Among many

influencing factors, earnings per share under both equation and for all years predominantly

determined Indian stocks followed by sales to equity ratio and payout ratio. Tuli, Nishi and

Mittal, R.K. (2001) made an attempt to determine the price earning ratio of 105 companies for

the period 1989-93 using cross sectional analysis. Variability in market price, dividend pay-

out ratio and earnings per share were found to be significant whereas size, debt equity ratio

and growth were insignificant.

Malakar, B. and Gupta, R., (2002) tested data on determinants of share price of eight

major cement companies in India for the period 1968 to 1988. Two-Stage-Least-Squares

method was applied for estimation purpose. The system contains five equations involving five

endogenous variables, namely, the share price, dividend per share, earnings per share, re-

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tained earnings, and sales proceeds; one lagged endogenous variable and five exogenous vari-

ables, namely product price, rate of interest, investment expenditure, sales asset ratio and debt

equity ratio. Earnings per share and investment expenditure were found to be significant de-

terminant of share price. Bodhanwala, R.J. (2003) analyzed share price of top ten companies

based on market capitalization listed on Bombay Stock Exchange. It was found out that deter-

mination of share price was a function of estimation of abnormal growth rate for ‘n’ years

rather than cost of equity.

Dutta, S.K. (2004) made a survey on three groups viz; individuals, brokers and finan-

cial institutions to study the impact of micro and macro factors on share price. Most of the in -

dividual and brokers considered the role of random elements in share price as very important

in post reform period. Saggar, S. (2005) analyzed the financing and investment pattern of

non-financial, non-government, public limited firms over the period 1971-72 to 1999-2000, at

an aggregate and disaggregate level of major industry groups. On the sources side, the financ-

ing pattern of Indian firms was found to be debt based but their share of internal sources in-

creased markedly in the latter half of the 1990’s, which had an impact on share prices.

Foreign studies:

Conroy, Robert M., et al (2000) studied the pricing effects of dividend and earnings

announcements by taking advantage of the unique setting in Japan. They found that share

price reactions were significantly affected by earnings surprises, especially management fore-

casts of next years’ earnings. Grossman, Z.P., (2000) examined the share price behavior of

two companies, the Adams Express and the American Express from 1885 to1898. The aver-

age of daily bank clearances outside New York City and direction of economic growth influ-

enced express share prices. Interest rates too were determinant of changes in share prices.

Dividends gave some indirect indication of earnings as well as a definite measurable return.

Irfan, C.M. and Nishat, M. (2000) identified the joint effect of multiple factors on

share prices in Karachi Stock Exchange (KSE) using annual balance sheet data of listed firms

during 1981-2000. Out of six fundamantal factors, only four had impact on share prices at

KSE i.e. payout ratio, size, leverage and yield. A comparison of pre-reform and post-reform

was also undertaken in the study. Dyl. E. A., (2002) examined whether the cross sectional

variations in Australian share prices were partially explained by measures of firms size and

ownership characteristics. A sample of 400 firms whose shares were traded and listed on Aus-

tralian Stock Exchange (ASE) for the year 1995 had been employed. The results revealed that

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firms owned predominantly by smaller shareholders tend to have low stock price and that

large well known firms have high stock prices.

Piotroski D. Joseph. (2004) studied the extent to which trade generating activities of

three informed market participants-financial analysts, institutional investors and insiders in-

fluenced the relative amount of market level information impounded into stock prices. They

found out that stock return synchronicity was positively associated with analysts forecasting

activities, consistent with analysts increasing the amount of industry level information in

prices through intra-industry information transfers.

The foregoing review of studies reveals that many research studies have been con-

ducted in this area but they have not provided sound theoretical and empirical explanation as

to why securities sell at certain prices. Most of these studies were based on small sample with

a limited number of variables and analyzed different forms of relationships without compar-

ing their relative performance. The present study is an improvement over earlier studies.

Firstly, it employs large sample for purpose of investigation. Secondly, it examines a large

number of variables than those included in earlier studies. Thirdly, it considers the impact of

post reform era of liberalization on share prices, which was an important period for develop-

ment of capital market in India.

Section - II

Database and Research Methodology

The present study deals with fundamental analysis of share valuation as it focuses on

factors relating to company. This section explains in detail the objectives, period, sample and

database of the study.

Objectives of the study

The present study has been undertaken to meet the following specific objectives:

1. To examine the empirical relationship between equity share prices and explanatory variables

such as: Book Value Per Share (BV), Cover (C), Dividend Per Share (DPS), Earnings Per

Share (EPS), Payout (P), Price Earning (P/E), Return Capital Employed (ROCE) and Size (S)

for the period 2001-2005.

2. To study the significance of above variables in all the six industries as well as for grouped

data of all these industries.

Sample and period of study

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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

Industry No. of Companies

General Engineering 28

Cotton Textile 23

Chemical 33

Iron and Steel 26

Electrical 28

Miscellaneous 22

Total 160

While selecting the sample of the companies from six industries, the following criteria is

adopted:

I. The necessary financial data required for calculating the measures of dependent and indepen-

dent variable pertaining to all the years 2001-2005 is available.

II. The companies did not skip dividend for any two successive years are included the sample.

III. The company whose average earnings per share of any three successive years is not zero or

negative is also considered.

IV. Further only those companies whose price data is available are retained in the sample size.

V. The listed shares on Bombay Stock Exchange are considered.

Database

The data relating to the companies was taken from ‘PROWESS’ database of the Centre

for Monitoring Indian Economy (CMIE) and Bombay Stock Exchange Official Directory.

The supplementary sources of data were:

a) 2004 Compendium of Top 500 companies in India published by Capital Market publish-

ers India Pvt. Ltd.

b) Financial journals/Dailies like Capital Market, Business India, Fortune India, Dalal Street

and financial newspapers like Economic Times and Financial Express were also used.

c) Data regarding share prices was also taken from website: www.bseindia.com.

Regression Model

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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 for evaluating the individual and combined effect of a set of in-

dependent variables on dependent variable. The significance of the coefficient of various ex-

planatory variables was tested at 1% and 5% by computing t-values. To determine the propor-

tion of explained variation in the dependent variable, coefficient of multiple Determination

(R2) was worked out. The overall significance of regression equation was tested with the help

F-values.

Section III

Company Performance Variables and Equity Share Prices

For the purpose of empirical analysis, share price has been assumed to be dependent

variable while other factors have been taken as explanatory or independent variables. To ex-

plain share price in the year ‘t’, data used to calculate the values of explanatory variables re-

late to the years (t-1) i.e. preceding 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 com-

pany 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.

1. Share Price (SP)

The forces of demand and supply in the market mainly determine the market price of

the share. It is the balance struck between the buyers and sellers. (Malhotra, 1987, p.74).

Some of the empirical studies (Piotroski D. Joseph. et al 2004); (Zahir and Khanna, 1982)

have also provided evidence in favour of this average proposition. Mathematically it is calcu-

lated as:

SPt = (PH + PL) / 2

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

lates to the ‘t’ period.

2. Book Value (BV)

It is also known as net asset value per share because it measures the amount of assets,

which the corporation has on behalf of each equity share. BV shows the investment per share

made in the business by the shareholders. A high Book value usually indicates that the com-

pany has a good record of past performances, i.e. high reserves therefore high market price

(Grewal, 1986, p111). Various studies have considered this ratio as a determinant of share

price (Zahir and Khanna 1982; Dixit 1983; Bal Krishan 1984). It is calculated as follows:

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Book Value per share = Equity Share Capital + Shareholders Reserves

Total no. of Equity Shares Outstanding

3. Cover (C)

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

company. Cover has a negative relationship with market price. It is calculated as follows: -

Cover = Profits after tax and preference dividend / Equity Dividend

or

Cover = Earnings per share / Dividend per share

4. Dividend Per Share (DPS)

It refers to the actual amount of dividend (gross) declared per share. The net profit af -

ter taxes belong to shareholders but the income that they really receive is the amount of earn-

ings distributed and paid as cash dividend. The dividends generally influence the share price in

positive direction as depicted by earlier studies (Gordon 1959, Desai 1965, Irfan, C.M. and

Nishat, M. 2000) (Gitman, Lawrence J., 2004).

Dividend Per Share = Total amount (dividend) paid to equity shareholders

Number of Equity Shares Outstanding

5. Earnings Per Share (EPS)

The Equity shareholders are the sole claimants to the net earnings of the corporation

after making payment of dividend to the preference shareholders. The significance of this ra-

tio 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. Several event-based

studies established direct relation between share price changes with earnings or dividend

changes (Ball and Brown 1968; Baskin 1989). It is calculated as follows; -

EPS = Net Income after interest, income tax & preference dividend

Numbers of Equity Shares Outstanding

6. Dividend Payout Ratio (P)

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

ence 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. Linter (1956) linked dividend

changes to earnings while Shapiro valuation model (1962) showed dividend streams dis-

counted by the difference in discount rate and growth in dividend should be equal to share

price. This predicts direct relation between payout ratio and the price-earning multiple. Con-

versely it means that there is an inverse relation between payout ratio and share price

changes.

Dividend Payout = Total Dividend to Equity shareholders *100

Total Net Profit belonging to Equity shareholders

or

= Dividend per share / Earnings per share

7. Price/Earning Ratio (P/E)

P/E 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 re-

quired to recover his investment in a company’s share. The price-earning ratio has a positive

relationship with market price(Dixit, 1986). It was calculated as follows: -

P/E = Market price per share / Earnings per share

8. Return on Capital Employed (ROCE)

The return on investment indicates the efficiency with which a company utilizes funds

invested in it. This ratio reveals how well the resources of a firm are being used, higher the

ratio better are the results. The inter-firm comparison of this ratio determines whether the in-

vestments are attractive or not as the investor would like to invest only where the return is

higher. It generally has positive relationship with market price of equity share. It is computed

as follows: -

ROCE = Profits after tax, plus interest * 100

Total Capital Employed

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9. 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, 1961). 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 outstand-

ing, etc. The amount of total assets is taken as a measure of size because it represents the total

resources at the command of the firm (Sachdeva, V.P. 1994).

Section IV

Analysis and Interpretation of Regression Results

It is clear from table1 that in aggregate, industries earnings per share and PE ratio are

the most important determinants of market price as their respective co-efficients are posi-

tively significant at 1% level in all the years. The co-efficient of book value per share is posi-

tively significant at 1% level in all the years except 2004. Dividend per share though signifi-

cant at 1% level in the year 2003, 2004 and 2005 but gave negative results in the most of the

years. Cover is found to be negatively significant at 5% level in the year 2004 and 2005. The

coefficient of determination (R2) is also found increasing in each regression with its respec-

tive ‘F’ value significant at 1% level. Table 2 shows that R2 explained 81.5% variation in mar-

ket price of shares in the year 2005 which was 60.5% in the year 2001. All this leads us to

conclude that Earnings Per Share is the most important determinant of share price followed

by Book Value and Price Earning Ratio. Size is found to be insignificant in the study.

As far as Industry wise analysis is concerned, General Engineering Industry’s EPS is

positively significant at 1% level in all the years except for 2005. Cover is found to be nega-

tively significant in at 5% level in the year 2001. DPS is found to be positively significant in

the year 2005 at 1% level which is due to increase in dividend payment by firms. Book value

is found to be significant at 1% level in the year 2003 and 2005. PE ratio is too found to be

positively significant in most of the years. The coefficient of determination (R2) indicate that

variables could explain 75% variation in market price in the year 2005 which was 46.6% in

2001. The computed F-values are found to be significant at 1% in all the years. Therefore

Earning Per Share is the most important factor followed by Book Value and PE ratio that af-

fects share prices in Engineering industry.

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In Cotton Textile Industry, Book Value is found to be positively significant at 1%

level in the year 2001 and 2003 followed by size, which is also positively significant all the

years. Therefore only size and Book Value proved to be important determinant of share price

in Cotton Textile Industry. Rest of the explanatory variables is statistically insignificant in

most of the years. The coefficient of determination (R2) was 95.6% in 2005, which was 83.1%

in 2001 as revealed by table 2. The F-value is found to be significant in all the years at 1%

level. The results proved that excessively high Book Value often raises the expectations for

bonus issues and significantly affects the market price of shares. Size indicates that bigger the

size of a firm higher is the market price of its share and vice-versa as shown in Cotton Textile

industry,

In chemical industry, coefficient of Book Value has shown expected positive signs

and is found to be significant at 5% level in the year 2002. PE ratio is found to be positively

significant in all the years. Return on Capital Employed is positively significant at 5% level in

the year 2002 and 2003. Cover, DPS, Size and EPS are found to be statistically insignificant

in all the years. Table 2 shows that the coefficient of determination (R2) varied from 40.9% to

85.5% during the period under study and all of them are significant at 1% level with their re-

spective F-values. The results show that investors in Chemical industry, value shares on the

basis of PE ratio followed by Return on Capital Employed, as both are indicators of prof-

itability of the company.

In Iron and Steel Industry, coefficient of Book value is positive in all the years and

highly significant at 1% level in the year 2001 and 2004. This shows that the available assets

are a good measure of the earning power of the industry. PE ratio is positively and highly sig-

nificant in all the years except 2001. Dividend per share is positively significant in the year

2003 and 2005 but negative in rest of the years, which is contrary to supposition. Size too is

positively significant at 5% level in the year 2004. Cover and Payout are found to be statisti-

cally insignificant in all the years. The coefficient of determination (R2) as depicted in table 2

varied from 66.4% in the year 2001 to 72.2% in the year 2005. F-values are significant at 1%

level throughout the period of study. The External Economic and market factors appear to

have more pronounced impact on share prices than the fundamental factors.

In Electrical Industry, t-values of EPS have positive sign and are found to be highly sig-

nificant at 1% level in the year 2001 and 2002. PE ratio is positively significant at 1% level in

all the years except 2001. Payout ratio showed negative and significant relationship with mar-

ket price at 1% level in the year 2003, 2004 and 2005. Rest of the explanatory variables is

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found to be insignificant for the purpose of analysis. The coefficient of determination (R2) as

shown in table 2 varied from 74.6% in 2001 to 76.2% in 2005. F-value is positively signifi -

cant at 1% level in all the years except 2004. Therefore EPS and PE ratio turned to be most

important determinant of share price in this industry, which means that higher EPS higher is

the market price and vice-versa. DPS also showed significant relationship with market price,

which implies that increase in dividends, indicated improved earning prospects of the com-

pany.

In miscellaneous Industry, coefficient of Book Value is positive in all the years except

2004. The t-values are highly significant at 1% level in the year 2001 and 2002. Cover is neg-

atively significant in the year 2001 and 2005. DPS is found to be positively significant in

2003 and 2004. EPS showed negative sign, which is contrary to the expectations. Price Earn-

ings ratio too is highly significant at 1% level in the year 2004 and 2005. Return on Capital

Employed is statistically significant in 2001 only. Size is found to be insignificant. Table 2

shows that the coefficient of determination (R2) varied from 95.4% in the year 2001 to 92.3%

in the year 2005. The f-values are found to be statistically significant at 1% level in all the

years. Therefore, Book value per share, price-earning ratio and payout are important determi-

nants of share price in miscellaneous industry.

Section V

Conclusion

The present study attempts to examine the empirical relationship of explanatory variables

namely, dividend per share, earnings per share, price-earnings ratio, book value per share, size,

cover, return on capital employed and payout ratio on market price of the shares in the post-re-

form era of liberalization. The relationship between independent and dependent variables of

160 companies is studied over a period of five years ranging from 2001 to 2005.The results re-

vealed that Earnings per share and book value per share are important determinant of share

price as they are an index of the sound financial position of the companies. Dividend per share

is important determinant 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 the sharehold-

ers as depicted by payout ratio and cover. Price-earnings ratio too showed investors’ expecta-

tion about the growth in the firm’s earnings that varied from industry to industry.

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APPENDIX-I

TABLE-1

Determinants of Equity share prices in various Industries-Regression Results

Variable / year

Industry BV C DPS EPS P PE ROCE S

2001

G N Y** N Y* N Y* N N

Ct Y* N N N N N N Y*

C N N N N N Y* N N

IS Y* N N N N N N N

E N Y** N Y* N N N N

M Y* Y** N Y* Y** Y** Y* N

A Y* N N Y* N Y* Y** N

2002

G Y** N N Y* N Y* N N

Ct N Y** N N Y** Y** N Y*

C Y** N N N N Y* Y** N

IS N N N Y* N Y** N N

E N N Y* Y* N Y* N N

M Y* N N N N N N N

A Y* N N Y* N Y* Y** N

2003

G Y* N N Y* Y** N N N

Ct Y* N N N N N N Y*

C N N N N N Y* Y** N

IS N N Y** N N Y* N N

E N N Y* N Y* Y* N N

M Y** Y** Y** N Y** Y** N N

A Y* N Y* Y* N Y* N N

2004

G N N N Y* N Y* N N

Ct N N N N N N N Y*

C N N N N Y** Y* N N

IS Y* N N N N Y* Y** Y**

E N N N N Y* Y* N N

M Y* N Y* Y* Y* Y* N N

A N Y** Y* Y* N Y* N N

2005

G Y* N Y* Y* N N Y* Y*

Ct N N N Y* N N N Y**

C N N N N N Y** N N

IS N N Y** N N Y* N N

E N N N N Y* Y* N N

M Y** Y** N Y* Y* Y* N N

A Y* Y** Y* Y* Y* Y* Y* N

Y* and Y** denote the significance at 1% and 5% level for t-values of regression coefficients respectively.

N denotes insignificant values.

Where- G = General Engineering Industry; Ct = Cotton Textile industry; C = Chemical Industry;

IS = Iron and Steel Industry; E = Electrical Industry; M = Miscellaneous Industry;

A = Aggregate Industry

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TABLE-2

Coefficient of Determination of Various Industries-Regression Results

Year/ In-dustry

Values 2001 2002 2003 2004 2005

General En-gineering In-

dustryAdj R2 0.466 0.749 0.877 0.84 0.75

F-Value 3.944* 11.063* 25.147* 21.247* 12.542*

Cotton Tex-tile Industry

Adj R2 0.831 0.868 0.837 0.883 0.956

F-Value 14.512* 19.09* 15.29* 21.69* 60.85*

Chemical In-dustry

Adj R2 0.855 0.749 0.65 0.678 0.409

F-Value 24.56* 12.96* 8.42* 9.41* 3.77*

Iron and Steel Indus-

tryAdj R2 0.664 0.88 0.756 0.646 0.722

F-Value 7.18* 24.1* 10.7* 6.6* 9.1*

Electrical In-dustry

Adj R2 0.746 0.91 0.685 0.369 0.762

F-Value 10.9* 34.9* 8.35* 2.9** 11.8*

Miscella-neous Indus-

tryAdj R2 0.954 0.938 0.948 0.913 0.923

F-Value 55.45* 40.65* 48.50* 28.65* 30.45*

Aggregate In-dustry

Adj R2 0.605 0.698 0.737 0.76 0.815

F-Value 31.4* 46.94* 56.75* 35.4* 87.03*

* and ** denote significance at 1% and 5% level for F-values respectively.

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APPENDIX-II

LIST OF COMPANIES UNDER STUDY

General Engineering Industry 1. Ashok Leyland Ltd. 2. Bajaj Auto Ltd. 3. Bharat Earth Movers Ltd.4. Cummins India Ltd.5. Eicher Motors Ltd.6. Engineers India Ltd.7. Hero Honda Motors Ltd.8. Kirloskar Brothers Ltd.9. Kirloskar Oil Engines Ltd.10. Lakshmi Machine Works Ltd.11. Larsen & Toubro Ltd.12. Mahindra & Mahindra Ltd.13. Motor Industries Co. Ltd.14. Patel Engineering Ltd.15. Punjab Tractors Ltd.16. Thermax Ltd.17. Voltas Ltd.18. CMC ltd.19. Infosys Technologies Ltd.20. Moser Baer India Ltd.21. Polaris Software Lab. Ltd.22. Satyam Computer Services Ltd.23. Tata Infotech Ltd.24. Wipro Lt.25. Alfa Laval (India) Ltd.26. Gabriel India Ltd.27. KSB Pumps Ltd.28. Tayo Rolls Ltd.Cotton Textile industry1. Alok Industries.2. Bombay Dyeing & Mfg. Co.Ltd.3. Century Enka Ltd.4. Century Textiles & Inds. Ltd.5. DCM Shriram Conslidated Ltd.6. Forbes Gokak Ltd.7. Grasim Industries Ltd.8. Mahavir Spinning Mills Ltd.9. Rajasthan Spinning & Wvg. Mills

Ltd.10. Raymond Ltd.11. SRF Ltd.

12. Vardhman Spinning & General Mills Ltd.

13. Eurotex Industries & Exports Ltd.14. GTN Textiles Ltd.15. Maral Overseas Ltd.16. Nahar Exports Ltd.17. Patspin India Ltd.18. Prime Textiles Ltd.19. Super Spinning Mills Ltd.20. Vardhman Polytex Ltd.21. Century Textiles & Ind. Ltd.22. Shri. Dinesh Mills Ltd.23. Sutluj Industries Ltd.Chemical Industry1. Atul Ltd.2. Berger Paints India Ltd.3. Castrol India Ltd.4. Chambal Fertilizers & Chemicals

Ltd.5. Finolex Industries Ltd.6. Godrej Industries Ltd.7. Goodlass Nerolac Paints Ltd.8. Gujrat Narmada Valley Fertilizers

Co.Ltd.9. ICI India Ltd.10. Indian Petrochemicals Corp. Ltd.11. Jubilant Organosys Ltd.12. Micro Inks Ltd.13. National Fertilizers Ltd.14. Nirma Ltd.15. Pidilite Industries Ltd.16. Supreme Industries Ltd.17. Tata Chemicals Ltd.18. Asian Paints (India) LTD.19. Bharat Petroleum Corpn. Ltd.20. Hindusthan Petroleum Corpn. Ltd.21. Oil & Natural Gas Corpn. Ltd.22. Reliance Industries Ltd.23. Indian Oil Corpn. Ltd.24. Aurobindo Pharma Ltd.25. Aventis Pharma Ltd.26. Cipla Ltd.27. Dr. Reddy’s Laboratories Ltd.

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28. Ipca Laboratories Ltd.29. Lupin Ltd.30. Nicholas Piramal India Ltd.31. Orchid Chemicals & Pharmaceuti

cals Ltd.32. Ranbaxy Laboratories Ltd.33. Sun Pharmaceuticals Inds. Ltd.Iron and Steel Industry1. Balmer Lawrie & Co. Ltd.2. Bharat Forge Ltd.3. Bhushan Steel & Strips Ltd.4. Electrosteel Castings Ltd.5. Hindalco Industries Ltd.6. Jindal Saw Ltd.7. National Aluminium Co. Ltd.8. PSL Ltd.9. Sesa Goa Ltd.10. Sterlite Industries (India) Ltd.11. Sundram - Clayton Ltd.12. Sundram – Fasteners Ltd.13. Tata Iron & Steel Co. Ltd.14. Tube Investment of India Ltd.15. Usha Martin Ltd.16. Acrow India Ltd.17. Investment & Precision Casting

Ltd.18. Kalpatarn Power Transmission Ltd.19. LG Balakrishnan & Bros Ltd.20. MM Forgings Ltd.21. Maharashtra Seamless Ltd.22. Oriental Containers Ltd.23. Shivalik Bimetal Controls Ltd.24. Sterlings Tools Ltd.25. Tata Sponge Iron Ltd.26. Tayo Rolls Ltd.Electrical Industry1. ABB Ltd.2. Bharat Electronics.3. BHEL4. Blue Star Ltd.5. Exide Industries Ltd.6. Mirc Electronics Ltd.7. Reliance Energy Ltd.8. Samtel Color Ltd.9. Siemens Ltd.10. Surya Roshni Ltd.11. Tata Power Co. Ltd.

12. Titan Industries Ltd.13. Torrent Power AEC Ltd.14. Torrent Power SEC Ltd.15. Amara Raja Batteries Ltd.16. Bayer Diagnostics India Ltd.17. Bhagyanagar Metals Ltd.18. Finolex Cables Ltd.19. Graphite India Ltd.20. HCL Infosystem Ltd.21. HEG Ltd.22. Havell’s India Ltd.23. Honda Siel Power Products Ltd.24. Honeywell Automation India Ltd.25. Igarashi Motors India Ltd.26. Precision Wires India Ltd.27. Salora International Ltd.28. Wartsila India Ltd.Miscellaneous Industry1. Apollo Tyres Ltd.2. Asian Star Co. Ltd.3. Classic Diamonds (India) Ltd.4. Colgate-Palmolive (India) Ltd.5. Dabur India Ltd.6. Godfrey Philips India Ltd.7. Hindustan Lever Ltd.8. ITC Ltd.9. Kesoram Industries Ltd.10. MRF Ltd.11. Associated Cement Companies

Ltd.12. Gujrat Ambuja Cement Ltd.13. Madras Cements Ltd.14. Ballarpur Industries Ltd.15. Balrampur Chini Mills Ltd.16. Britannia Industries Ltd.17. Glaxosmithkline Consumer Health-

care Ltd.18. Gujrat Ambuja Exports Ltd.19. Marico Industries Ltd.20. Nestle India Ltd.21. Ruchi Soya Industries Ltd.22. Tata Tea Ltd.

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