The Effect of Internal and External Factors on the Stock Price of Pharmaceutical Companies in Emerging and Emerged Markets

Abstract

Purpose: The global financial crisis of 2008, considered by many economists to have been the most consequential since the great depression of the 1930s, altered the very fabric of global macro-economy and left many short and long-term impressions at various levels. Though the catastrophic effect of that meltdown penetrated the global market with lightning speed, the aftermath was rather uneven in its manifestation. Countries of American and European continent suffered severely but Asian countries were rather mildly affected and the reason behind this uneven perfusion could be the disparity in the economic environment at the microeconomic and macroeconomic levels in different continents.

The Purpose of carrying out this research is to unveil the influence of internal microeconomic factors at firm level as well as external macroeconomic factors at country level on the overall stock price of Pharmaceutical companies of Asia's emerging market (India) and emerged markets of United States of America and Western European countries (Germany, France, UK, and Switzerland) after the global financial crisis of year 2008.

Research Design/Methodology: During the present course of the investigation, secondary data of forty pharmaceutical companies from the year 2008 to the year 2017 has been employed to perform an empirical analysis. Moreover, an explanatory and comparative research design has been applied to corroborate the statistical outcome.

For statistical analysis, EViews 10 student version, statistical software has been used on the dependent variable "Organization Stock Price" and several internal independent variables such as Return on Equity (ROE), Earnings Per Share (EPS), Dividend Per Share (DPS), Dividend Payout Ratio (DPR), PE ratio, firm's asset as well as few macroeconomic level independent variables such as corporate tax, inflation rate, GDP and exchange rate.

Findings: Price movement of stocks is not independent in nature and doesn't follow a random walk. There are several factors responsible for the stock price movement such as investor sentiment, social, economic, environment and organization's operational and financial situation etc. This study shows how the aforementioned factors affect the stock prices of sample companies of emerging and emerged markets.

Practical Implications: The outcome of this research could be helpful to managers to regulate organization's financial ratios and address the macroeconomic fluctuations to sustain the momentum of the stock price that will inadvertently increase the value of the company. From the investor's point of view, this study could provide them with better anticipation of future trends in the stock prices.

Originality/Value: This study offers a contemporary review of the role of organizational and macroeconomic factors on the share price of companies and the stock market, thus contributes to the available literature in this domain.

Keywords: Pharmaceutical Companies, Emerging Market, Emerged Market, Microeconomic Variables, Macroeconomic Variables

DOI: 10.7176/EJBM/11-36-18

Publication date: December 31^st 2019