An Assessment of the Influence of Fundamental Factors on Share Prices in Sri Lanka (PDF)

Master's Thesis from the year 2003 in the subject Economics - Finance, University of Kelaniya, course: Master of Commerce, language: English, abstract: This is a study on equity share valuation. In this work, the author studied the behavior of certain fundamental factors determining share price in Sri Lanka. It attempts to answer the following question: What is the empirical relationship between equity share price and factors like earning, growth, leverage, and risk and company size?

To assess the relative influence of the above mentioned fundamental factors on share price the author used regression analysis with standard OLS assumption and continuous cross-section analysis was carried out with log linear regression model for the period 1993 through 2001. The sample consisted of 30 shares from a group of 239 shares of firms in all industries except the bank and insurance industry.

On the basis of this study, the author found out that dividend appears a powerful influence on share than growth and retained earnings. Business risk and financial risk cannot to be assessed which are redundant variables. This means there are relatively free from major risk in Sri Lanka Stock Market. Company size is considerable influence on share prices in which large companies enjoy high value of share. On the basis of these findings I may make the following observation about the Stock Market in Sri Lanka.