Does Firms’ Financial Performance Affect The Share Price-Evidence from DS30 Index, Bangladesh?

Abstract

This research investigates the impact of firms’ performance on share price over a multi year time frame from 2015 to 2019, on a sample of 22 firms out of 30, on DS30 Index, Bangladesh. Firm’s performance (autonomous variable) are measured by the earnings per share, return on assets, return on equity, quick ratio, and net profit margin, whereas year-end share price is used as reliant variable. The Hausman test and the comparative analysis of the outputs of pooled and fixed effect panel regression model convey that the fixed effect regression model is best fit for data analysis. Likewise, the fixed effect model clarifies almost one third of all of the variation in the response variable around its mean. This study finds that earnings per share and return on assets have a significant positive impact on the share price, whereas return on equity, and net profit margin has an immaterial negative impact on the share price. Moreover, quick ratio has a feeble positive effect on share price. This paper suggests that speculators should buy share if earnings per share and return on asset of a firm increases and the other way around.

Keywords: Earnings per share, Return on assets, Return on equity, Net profit margin, Quick ratio, and Share price.

DOI: 10.7176/RJFA/13-8-07

Publication date: April 30^th 2022