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Thesis Version 1
Thesis Version 1
Chapter I
THE PROBLEM
This chapter presents the problem of the study. Specifically, this shows
Introduction
objectives, including financial objectives, to give a solid plan for moving in the
However conflicts may arise when the interest of the investors and
the Philippines today, the transition has spurred various opportunities for the
which is advantageous for both real estate companies and investors. (Robles,
2018)
The companies must also take into account future management, business
expansions and investments for it to grow and the way to do it is to retain the
earnings.
2
This study aims to identify the effect of retained earnings to the firm’s
industry for years since the Philippines has been experiencing a rapid
shareholders.
The real estate industry’s steady growth in the past decade in the
employees, since a growing number of these workers need to live near their
workplace; and remittances from overseas Filipino workers (OFWs), more than
half of which are real estate-related. (Ortiguero, 2018) Due to this, the stock of
real estate companies has outperformed because many investors believe in its
inventories to sell to prospect and qualify the best available affordable investment
The investors and company desires are in conflict. Real estate companies’
Capital intensive industries and growing industries tend to retain more of their
earnings than other industries because they require more asset investment just
are one component of the corporation's net-worth and it increases the supply of
authorized expenditures. But the big question on investor’s part lies whether is it
A lot of issues have arisen regarding real estate industry. For instance,
the local IT and business process management (IT-BPM) industry faces some
uncertainties with Donald Trump as the new president of the United States, and
with President Duterte’s earlier controversial remarks against the economic giant.
It should be noted that the US accounts for more than 70 percent of the IT-BPM
business in the country, and the industry is currently one of the more significant
growth drivers of the office property market. This particular segment has been
touted as one of the brighter spots in the real estate sector. Others are global
economic upheavals that might affect overseas Filipino workers’ movement and
regulate this important sector; Political issues that might compromise decisions
regulate this important sector; the country’s readiness to implement the Real
Estate Investment Trust (REIT) Law, which is another overdue initiative that is
expected to boost real estate investment for ordinary stock market players. The
REIT law should be initiated hand in glove with the Tax Reform Law; and a
potential conflict between two critical agencies in the government: the housing
and agrarian agencies, as to the issue of land ownership. Given the challenges
facing the real estate industry today, there is greater need to protect both the real
estate industry itself and investors as they serve as the blood bank of the
industry. From this, the proponents conducted this study to establish the effect of
retained earnings to stock returns mainly on the top 10 publicly listed companies
both the stock prices at the beginning and end of period as well as the stock
relationship between the retained earnings on the stock returns on the top ten
publicly listed real estate companies in the Philippines. Also, the study
This study aims to identify the effect of retained earnings to firm’s stock
1. What is the business profile of the Top 10 publicly listed real estate
1.1 capitalization;
2. What is the trend of retained earnings using the retention ratio of the
3. What is the trend of stock returns of the publicly listed real estate
4. Does retained earnings of the publicly listed real estate companies affect
Theoretical Framework
the structure of their study. It also helps develop hypothesis and support
directions of discussions of the study. This study will be guided by theories which
have previously been developed and that have called for more research on the
subject over the years. This study used the effect of Retained Earnings on the
6
(2011).
dividend only when it does not have profitable investment opportunities and uses
the dividends as a source of finance. Although, a firm can also pay dividends and
raise an equal amount by the issue of shares, this does not make much sense.
On the other hand, if dividend decision is taken for wealth maximization, payment
has a positive impact on the share price. So, to maximize the price per share, the
To measure this, Thuranira stated that dividends for the period and the
beginning and end of period stock prices were used to compute the stock
returns. The periodic retained earnings divided by the annual income for the
returns or stock performance includes both the stock prices at the beginning and
end of period as well as the stock dividends issued over the period. Elsewhere,
ultimately come back to the equity shares in the form of enhanced dividend or
capital gains.
Conceptual Framework
7
In this part of the study, the main intention is to identify the effect of the
retained earnings on the stock returns of the top 10 publicly listed real estate
prepared conceptual framework that leads them on finding the solution of their
problem.
Profile of the
business in terms Data gathering
of: through
Capitalization collecting and Proposed
Number of analyzing Information,
employees financial Education and
Number of statements Communication (IEC)
business Materials
existence Statistical
Total Assets Treatment of
data
Retained Earnings
Stock Returns
Figure 1
Conceptual Paradigm
employees, number of years in the operation and total assets. It also includedthe
retained earnings and stock returns that could be obtained in the financial
The process involved the data gathering through collecting and analyzing
the financial statements and statistical treatment of data in order to identify the
earnings on the stock returns mainly on the top 10 publicly listed companies in
between the retained earnings on the stock returns on the listed companies. The
and stock prices which are available on their annual reports. The processes of
the study involved the gathering and computing the stock returns and retained
earnings on a five year trend from year 2013 to 2017 and apply the R and R
The researchers used the top 10 publicly listed Real Estate companies in
the Philippines ranked based on capitalization, which held a large market share
9
in the real estate industry in the Philippines. The possibility of following different
further deviation are one of the errors impounded into the research. Also, the
errors in the data on prices as researchers are provided by the PSE, as well as
the study results. However, since the study used top ten publicly listed real estate
companies for a period of 5 years, the effect of possible errors from the data
cannot affect the results fundamentally. During data collection, the researchers
belonging to top ten: the Cebu Landmasters, Inc. and Double Dragon Properties.
adjustment years, and the researcher, with the guidance of the adviser pick the
top 11 and 12 as replacement. Also, the researchers conducted the study within
a short study period may not have allowed the researcher to consider more
variables and to measure more phenomenon related to the study variables such
as; those relating to the relationship between the variables across different
markets and times to establish the impact of the retained earnings on future
stock returns. However, the researcher gave the study maximum time and
attention by allocating more time to the study so as to complete within time and
performance of the top 10 real estate listed firms in the Philippines. Vital results
of this study can be highly significant and beneficial specifically to the following:
To the listed real estate companies, this study provides the guidance
The information through the help of this study may also help them in considering
both their long term and short-term investment for the company.
The information provided through this study helps portfolio managers in the
information.
To the stock traders, the research can help them to determine how to
and its investments’ potential. Related literature and studies reviewed by the
that will guide them in conducting their own study using variables not covered in
11
the present study. Also, they can acquire knowledge through method and
Definition of Terms
price.
distributed to shareholders.
Syama, 2014). In this study, it refers to the output designed from gathered and
wealth through distribution such as interest, royalties, dividends and rentals for
capital appreciation or for other benefits to the investing entity such as those
obtained though trading relationships. (Valix, Peralta, & Valix, 2017) In this study,
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investment will be defined as the amount used for further projects with the
the company at a specified time. [ CITATION FME13 \l 1033 ] In this study, it will
be defined as the owned by a person or entity that are recorded in the accounting
Net Income.It refers to as the bottom line, net profit, net pay or net
earnings is an entity’s income minus cost of goods sold, expenses and taxes for
Real Estate. Property in buildings and land (Kiyosaki, 2009). In this study,
real estate will be defined as the property like buildings and land.
for its expansion and diversification activities (Paramasivan, 2012). In this study,
retained earnings will be defined as the retained earnings when divided by the
subtracting total dividend from total earnings and then dividing the resulting
amount by earnings[ CITATION Boo10 \l 1033 ]. In this study, retention ratio will
Stocks. Are equity investments, which means that buying even one share
of a company’s stock means you are a part-owner[ CITATION Ram16 \l 1033 ].In
J3P13 \l 1033 ]. In this study, stocks price are the closing price in the beginning
a stock security (Strong, 2009). In this study, stock returns will be defined as
appreciation in the price plus any dividends paid, divided by the original price of
the stock.
Chapter II
REVIEW OF LITERATURE
This chapter deals with the review of related concepts and studies found
Conceptual Literature
allocation of there earnings. They may either retain the earning in taking into
and the way to do it is to retain the earnings or give out earnings to the
retained earnings through the retention ratio and the ratio of stock returns.
Stock Returns
14
gain additional funds to grow the company. Shares of public companies trade on
regulated stock exchanges, where investors can place buy and sell
orders [ CITATION Bas18 \l 13321 ].Once the investors acquire certain number of
shares, they have the right to participate and vote in annual general meetings.
Additionally, they also can acquire certain rights like inspection of certain
notice of, attend and vote at shareholder meetings; to appoint one or more
Coo09 \l 1057 ]
Moreover, shares are an integral part of the economy because they are a
between economic growth and stock market development where shares belong.
the country by recognizing and financing productive projects that ultimately lead
domestic capital markets, brings discipline and know-how into the domestic
capital markets, and facilitates the use of new products and instruments for risk
market where securities are traded after being initially offered to the public in the
primary market and/or listed on the Stock Exchange. Majorityof the trading is
and the debt markets comprises of equity markets and the debt markets.
suit different individual needs in the stocok market, for example conservative or
“safe” shares versus riskier shares. Basic share investment products is like
Exchange Traded Funds[ CITATION The18 \l 1057 ]. Thus, the risks invoved in
the stock market are issuer risk which pertains to the borrower’s credit capacity
country risk which is the manifistation of itself mainly in the form of exhange rate
risks and transfer risk which may impede or entirely prevent the international
purchasing or selling a financial instrument at any time at prices with the market
time or disred price; market risk is the risk that there is a potential fluctuation in
1057 ]
a company’s board of directors declare that the company has performed well and
a way to reward stockholders, who are the actual owners of the company, for
their investment. It's especially important for companies that are profitable, but
objective that has shareholder wealth as its highest priority. It has also other
purposes inside the company, which includes maximize value through policies
and increase both the amount and frequency of shareholder wealth paid.
stocks to stay constant over time, based on their long-run historical average.
has proved stubbornly uncooperative. In legal terms, shareholders don’t own the
17
its earnings). In law and practice, they don’t have final say over most big
corporate decisions (boards of directors do). And although many top managers
pledge fealty to shareholders, their actions and their pay packages often bespeak
other loyalties. This gap between rhetoric and reality—coupled with waves of
investors even more say. If only corporations really did put shareholders first, the
are all about the current business’s possibility of future growth and will also help
the business to keep surviving and hopefully thriving in the long term.
liabilities, including investments in debt and equity securities, for entities that
have not adopted IFRS 9. Stock return is known to be the profit obtained from an
P0
18
D = Dividends
The formula for the total stock return according to Total Stock Return
Calculatoris the appreciation in the price plus any dividends paid, divided by the
original price of the stock. The income sources from a stock is dividends and its
increase in value. The first portion of the numerator of the total stock return
formula looks at how much the value has increased (P 1 - P0). The denominator of
the formula to calculate a stock's total return is the original price of the stock
traders think the company's earnings are high, or will rise further, they bid up the
financial news knows, stock prices rise and fall in response to earnings and
company.
Moreover, the rise and fall of stock prices has been an issue of concern
for the researchers in the past. The inquisitiveness of researchers has been
increasing over the yearsto know the connection between stock prices and the
variables and stock prices through different approaches and models. Price
19
variations in the stock market are the most closely monitored economic
Stock prices are determined by the forces of demand and supply. There is no
clear evidence that tells us, exactly which factors are responsible for the variation
in the stock prices. But academicians and researchers do know a few things
about the forces that move a stock up or down. These forces fall into three
the expectation that the stock will rise in value) on the companies that are strong,
and short selling shares that you believe will drop in value with the expectation of
A factor that can affect stock price are the technical factors such as
While, market sentiments are the component of expectations about asset returns
that are not warranted by fundamentals and can affect the movement of stock
decreases, the consumer spending will also decrease which in turn will cause a
business, above and beyond the share price's appreciation. (Hicks, 2018)
the company’s pas performance as well as its potential for the future. Older,
more established companies are more likely to pay dividends than new firms.
Moreover, dividends are often paid quarterly at a pre-announced rate that gives
shareholders a preditable payout for that quarter, regardless of the daily share
price fluctuations, which are lower than ordinary income tax rates.
long-term total returns. If a company has a long history of paying a dividend and
management will begin each new year by first deciding the dividend payout and
then thinking about how best to use the rest of the free cash flow. This leaves no
management team that uses the cash available to them efficiently is central to
21
creating a well run - and profitable - company that is able to grow and thrive in
the future. Steady and constantly growing dividends can give a good indication
that these elements are in place. Dividend payments can act as a useful
barometer to identify companies that are disciplined and efficient in their capital
allocation and cash flow management. There exists an argument, however, that
companies who pay a dividend are just struggling to find new growth
However, in the early stages of a company’s life it is quite right that cash is
used to establish the business. It is often right that the company continues to re-
deploy cash into the business as it moves through the early growth phase and
into the maturity phase. Once at maturity, however, when competition has
entered the market place and the opportunities for such high growth have
diminished, it is entirely sensible that the company takes stock, and carefully
decides to allocate cash to only those projects where it can achieve high returns -
conclusion, the power of dividends from equity investing has never been
diminished and has in fact been slowly and surely working away, behind the
scenes, adding not just appreciation in the form of total returns but the ability to
return basis that includes both capital growth and dividend income. They also
tend to evaluate the macroeconomic indicators that would increase the stock
22
market return significantly. (Kvietkauskienė & Plakys2, 2013) The ability to issue
capital used to raise cash, which also provides an alternative to debt financing.
(Shaftoe, 2017)
corporate sector are important as much they determine whether the individual
shareholders as a class can expect to get what they want as return on their
important part of the whole financial strategy of the company. For investors, the
profit targets for their portfolios should be based on the dividend policy of the
of management and a key obective of most long-term incentives plans. The stock
where high performing level companies are expected to give a return higher than
Retained Earnings
23
often reinvested in the company to use for projects such as research and
Retained earnings are usually treated as a cumulative number over the life
form of retained earnings are ploughed back into the company for diversification
on funds from external sources in order to finance their regular business needs.
have to be used for the accumulation of assets that generate income for the
retention in enhancing the growth of firms has been the driving force for many
24
study [ CITATION Thi13 \l 1057 ] which analyses potential variables that would
stated in the column [ CITATION Fac18 \l 1057 ], these affect could make it
earnings are net income/ net lost and dividend payments. If the entity makes a lot
of profit and subsequently net income, then the earnings will be increasing
eventually. Others factors that affect retained earnings are sales, cost of goods
sold, interest expenses, and some adjustments that could affect the opening
Retention ratio on the other hand, is the percentage of the profit that the
company keeps instead of paying profits out as dividends. The retention ratio is
the opposite of the payout ratio. The payout ratio + the retention ratio will equal
have high or low retention ratios. Companies with low retention ratios are value-
orientated companies where the board and management may own stock and pay
dividends to themselves (cynical view) or else the company do not have any
investment projects that are worth pursuing. While companies with high retention
ratios has a high growth company; they use the money to invest in other projects
and the companies do not have positive cash flow or positive earnings.
Net Income
equity on the balance sheet. This reinvestment into the company aims to achieve
be the main objective for a listed company and, as such, investors tend to pay
the most attention to reported profits. Sure, profits are important. But what the
company does with that money is equally important.[ CITATION Mor15 \l 1057 ]
to increase sales and profits by growing the business. Decent returns for even
the most patient investors can be elusive. For those forced to constantly repair
Mor15 \l 1057 ]
26
Some companies need large amounts of new capital just to keep running.
Others, however, can use the capital to grow. When one invest in a company,
Additionally, it's a running historical tally of net earnings not paid out to
time, but this should also be reflected in increased assets, as the company uses
technology, and acquire competitors. These things (in theory, if not always in
practice) add value to the business and make its ability to generate profits
stronger. To summarize, cash is often a product of retained earnings, but it's not
where most of those retained earnings will end up over time as companies
On the other hand, net income is the total amount earned (typically over
movement with net income will directly impact the Retained Earnings balance.
loss will pave the way to either business profitability or deficit. (CFI, 2018)
27
broader sense refers to the degree to which financial objectives being or has
monetary terms. It is used to measure firm's overall financial health over a given
period of time and can also be used to compare similar firms across the same
of analysis varies according to the specific interest of the party involves: trade
creditors who are interested in the liquidity of the firm (appraisal of firm’s
firm’s capital structure, the major sources and uses of funds, profitability over
firm’s profitability and financial condition); and the management who is interested
concerns for the users of financial statements. The way of measuring financial
business environment. Accounting theorists have put forward opinions for the
28
accurately measure the net income of the corporation. [ CITATION Ozc15 \l 1057 ]
Thus, making net income is better way in forecasting future operating income of
the company.
The real estate industry’s steady growth in the past decades is attributed
Moreover, landscape and the city skyline in the metro have changed so
drastically and substantially throughout the last three decades, which were
marked by boom and bust cycles, the onset of new trends, ideas and designs, as
well as the entry of more players, among others. Real estate services firms can
be considered as the most significant turning points and challenges that have
(ASPBI) of Real Estate Activites Sector for All Establishments released last
January 19, 2019 that there had been a rise to 5,065 establishments in the
formal sector of the economy were engaged in the real estate activities. There
had also been an increase in the total employment reaching 81,728 were about
99.8 percent of the total employees were paid and the rest were working owners
or unpaid workers. Also, the employees in this sector received the highest
income also generayted by this sector was estimated 1.53 per peso expense
whereas the value added generated by this sector was at P240.3 billion.
Moreover, private companies can choose to do what they want with their
For most investors, their immediate concern when evaluating a company is the
amount of profit the company's making. Beyond that, investors want a payoff to
reward them for their investment in the company, in the form of either in
grow. But it can also happen that a mature, stable company that never declares a
dividend can turn off investors who may wonder if there's an underlying structural
is also a source of finance for the capital requirements of firms. Returns from
such equity investments are however subject to vary, depending upon various
factors such as the performance of the particular stock, the market conditions,
etc. Knowledge of such factors and their possible impact on share prices is highly
On the other hand, if the company has any chance of growing, it must be
able to retain earnings and invest them in business ventures that, in turn, can
generate more earnings. In other words, a company that aims to grow must be
able to put its money to work, just like any investor.When evaluating the return on
to keep its profits. If a company reinvests retained capital and doesn't enjoy
Before buying, investors need to ask themselves not only whether a company
can make profits, but whether management can be trusted to generate growth
earnings as long as their use can bring a return which is above the company’s
cost of capital. It should continue to the point at which the incremental return is
of the ordinary share over the long run. Funds should be retained to the point that
the incremental rate of return for the company just exceeds the average rate of
31
return for the industry. But the financial executive has to make a balanced
judgement between the requirements of the company for additional funds and the
Cha18 \l 1057 ]
meticulous. This is also why developers are ensuring that their plans and project
to sell. Just continue to prospect and qualify and make sure to offer the best
second-tier and third-tier cities all over the country, where demand primarily
comes from end-user buyers. Opportunities are also seen in the popularity of e-
(Ortiguero, 2018)
Corp. “Investors bought the stock on what the company would or could do, not
Rens Cruz, an analyst at Regina Capital Development Corp. who has a hold
32
rating on the stock. The company is “still in a transition phase from one that
gets revenue from interim project to one that gets earnings from leasing.”
With this two parties’ desires conflict, real estate owners in the Philippines
reinvestment in the company that allows it to grow since real estate business is
Research Literature
earnings on the stock of top 10 publicly listed real estate companies in the
With regard to the study of Thuranira (2011) sought to establish the Effect
study followed a descriptive study design and used secondary data obtained
from Nairobi Securities Exchange and the listed company’s annual reports for the
period 2009 to 2013. The data was summarized through excel spreadsheets and
analyzed using Statistical Package for Social Sciences. Regression analysis was
between the two variables. The analysis involved a regression of stock returns
against retained earnings alone, and then another regression involving retained
earnings and three more variables; Dividend Yield, Net Asset Value per share,
Price to Book Value acting as the control variables. When stock returns were
33
inclusion of the three control variables revealed that there is a very weak
relationship between the variables. Further, the results revealed that a simple
linear regression model describing the relationship between stock returns and
retained earnings was statistically insignificant. Also, the results revealed that the
Multiple Linear Regression model which included the control variables was
statistically significant. Nonetheless, in both cases, the results revealed that there
exists a very weak and insignificant relationship between retained earnings and
stock returns and the relationship is inverse since the coefficient corresponding
to retained earnings in the model was always negative. Therefore, the study
retained earnings and stock returns. The study concluded that retention of
inverse. The study recommends that the corporate organizations need not retain
returns. They should retain earnings only when there are investment projects
retained earnings on stock returns of food and personal care good industry listed
on stock returns of food and personal care good industry listed in Karachi Stock
34
Exchange. The study used three sub variables of stock returns, i.e. capital
gain/loss yield, stock prices, cash dividend per share, and identify its relationship
with retained earnings. The analysis consists of seven active companies of food
and personal care good industry and used the data for a period of 2009-2014.
The study used convenience sampling of non- probability method and used linear
regression and Spearman’s correlation analysis. The study found a weak and
insignificant relationship between retained earnings and cash dividend per share
and capital gain/loss yield. The study also found a moderate positive and
significant relationship between retained earnings and closing price of stock. The
study concluded that the retention of earnings has a weak and insignificant
Returnsdelve into what causes the relation between book-to-market and the
cross section of stock returns. Book value of equity consists of two main
to-market's power to predict the cross section of stock returns in pre- and post-
market's predictive power stems entirely from accumulated earnings. This study
consequently is a good proxy for underlying earnings yield, which has a direct
the relationship of retained earnings and share price in Pakistan. For analysis, a
sample of 40 listed companies was taken from Karachi stock market. In this
research, variables data was taken from the period of 2005-2008. The
expectation was that the Retained Earnings would be positively related to Share
Prices. That is, increases in retained earnings the firm will be associated with an
increase in the firm's stock price. By contrast, firms with relatively higher earnings
volatility or higher leverage will tend to display higher price volatility. Simple
Linear Regression technique was used to analyze the relationship between share
price and retained earnings. A positive relation was found between retained
Another study by Masum (2014), the dividend policy and its impact on
stock price, examined what kind of relationship exists between dividend policy
what degree the returns on stocks can be explained by their respective dividend
policy for the same period of time. Various theories related to dividend policy are
tested in various parts of the world with different results and findings. Various
other articles are reviewed, written in Bangladesh and abroad to see the
significance of dividend policy on the stock prices and to compare the results of
this research with those conducted earlier. Sample size is large i.e. all the listed
36
commercial banks of Dhaka Stock Exchange so the results are reliable and valid.
Panel data approach is used to explain the relationship between dividends and
stock prices after controlling the variables like Earnings per Share, Return on
Equity, Retention Ratio have positive relation with Stock Prices and significantly
explain the variations in the market prices of shares, while the Dividend Yield and
Profit after Tax has negative, insignificant relation with stock prices. Overall
results of this study indicate that Dividend Policy has significant positive effect on
Stock Prices.
aboutthe impact of dividend policy on share price volatility in the Malaysian stock
market examined the relationship between dividend policy and share price
market. For this study, a sample of 84 companies from 142 consumer product
companies listed in main market of Bursa Malaysia were selected and the
dividend policy, dividend yield and payout, were examined by applying multiple
regression for a period of six years from 2005 to 2010. The primarily regression
model was expanded by adding control variables including size, earning volatility,
leverage, debt and growth. The empirical results of this study showed significant
negative relationship between share price volatility with two main measurements
of dividend policy which are dividend yield and dividend payout. Moreover, a
significant negative relationship between share price volatility and size is found.
37
Based on findings of this study, dividend yield and size have most impact on
Exchange. The factors which were tested are; firm size, dividend payout, growth
study of companies listed under different segments during the period between
2009 and 2012. Only 41 non-financial companies listed at NSE were studied
while financial companies were excluded from the study to remove any
anomalies associated with this sector which is highly regulated by the central
bank prudential on issues of liquidity, asset and capital holding, and provision for
bad debts among other factors. Secondary data from published reports and
financial statements at NSE was used in this study. Data was collected by use of
data collection sheet. The study employed a multiple regression data analysis
technique where tools of SPSS were used. The research findings indicated that
earnings. The study also revealed that both the firm size and growth
Dividend payout ratio was found to have little or no relationship with the retained
leverage and the retained earnings. This supported both the pecking order theory
and trade-off theory which predict a negative relationship between leverage and
38
retained earnings. Last but not least, assets tangibility was found to have a
tangibility of assets and some factors other than those ones tested in this study.
Earnings and Stock Prices on the Price- Earning Ratio of Firms Listed at the
involved a census survey of all the companies listed at the NSE during the years
sectors of the Exchange. Secondary data was obtained from the NSE
Handbooks covering the periods 2002 – 2006, 2003 – 2007 and 2008 – 2012
collected was summarized into yearly weighted averages for the test variables for
the NSE for the years 2003 – 2012. This summary data was then analyzed using
to test the relationship between the price earnings ratio and the growth of
earnings and stock prices. The study found that there existed a moderate but
positive association between the price earnings ratio and the growth of stock
prices, but an insignificant relationship between the price earnings ratio and the
between the growth in the price earnings ratio and the growth in stock prices, and
a moderate and negative association between the growth in price earnings ratio
and the weighted average annual riskless rate (the 91-day T-Bill rate). The
39
association between the growth in price earnings ratio and the growth in earnings
was not insignificant. The study found that these associations were more
pronounced for shorter periods, i.e. 2003 – 2007 and 2008 – 2012, than for the
entire 10 year period, and more pronounced for 2008 – 20012 than for 2003 –
2007.The study concluded that the associations determined for the NSE reflected
efficient market in the weak form, with growth rather than value shares
dominating the exchange. The study recommends reform of the NSE to move it
findings.
retainedearnings and firms’ market value, wherein, the study examined the
effects of retained earnings on market value of listed firms after controlling for
earnings per share, dividend payout and financial leverage in the context of the
Nigerian stock market. The sample data was extracted from 75 non-financial
firms listed on the Nigeria stock Market during the period 2003 to 2014. The
unbalanced panel data (cross-sectional and time series) used to examine the
relationship were obtained from the annual financial statements of the various
firms. Two basic approaches descriptive and multiple regression models were
used to determine the relationship between the underlying variables. The results
earnings per share, dividend payout and value of firms while market value is
40
regarding the empirical relationship between retained earnings and market value
of firms.
equation which included retained earnings, firm value and shareholders wealth
earnings on firm value and shareholders wealth. Also, impact of firm value on
shareholders wealth was analyzed. Primary data was collected from randomly
analysis was used to validate the instrument and ordinary least squares linear
regression analysis was used to test the formulated hypotheses. The major
findings suggested that retained earnings had played a vital role in expansion
sample firms was enhanced and shareholders wealth was maximized due to
Thus, results of the study validated the strength of retained earnings based firm
Synthesis
41
and understanding regarding the study conducted, the main purpose of which is
to identify the effect of retained earnings on the stock returns of top 10 publicly
listed real estates in the Philippines. Moreover, the studies handed important
The studies of Javed (2015) and Thuranira (2011) are the most related
studies in this research. The studies of the two were basically the same with the
returns. Descriptive research design was used, whereas Javed used explanatory
research design. The present and past study differed in the respondents since
the former used top 10 publicly listed real estate companies while the latter,
Javed used food and personal care good sector and Thuranira used all firms
listed at the Nairobi Securities Exchange. Present and past study differed in the
The study of Ball and associates (2017) to some extent was similar to the
present study. The difference was that aside on the retained earnings,
contributed capital was also examined in relation with the stock returns. The
studies of Javed (2015) and Thuranira (2011) are the most related studies in this
research. The studies of the two were basically the same with the present study
research design was used, whereas Javed used explanatory research design.
42
The present and past study differed in the respondents since the former used top
10 publicly listed real estate companies while the latter, Javed used food and
personal care good sector and Thuranira used all firms listed at the Nairobi
The study of Ball and associates (2017) to some extent was similar to the
present study. The difference was that aside on the retained earnings,
contributed capital was also examined in relation with the stock returns.
Explanatory research design was used by the previous study whereas present
study used descriptive research design. The present and past study differed from
the range of years it covered. The former ranges only for 5 years while the latter
With regard to the study of Masum (2014) and Mohammad and associates
(2012), present and past studies were similar in terms of statistical method and
secondary data used. However, former used real estates as the subject while
the latter, Masum used manufacturing companies and Mohammad used banking
industry.
(October 2014), Odiero (2008),Yemi and Seriki (2018) and Tirmizi [ CITATION
design, secondary data and statistical method in similar with the present study.
research design was used by the previous study whereas present study used
43
descriptive research design. The present and past study differed from the range
of years it covered. The former ranges only for 5 years while the latter covered
almost 52 years.
With regard to the study of Masum (2014) and Mohammad and associates
(2012), present and past studies were similar in terms of statistical method and
secondary data used. However, former used real estates as the subject while
the latter, Masum used manufacturing companies and Mohammad used banking
industry.
(October 2014), Odiero (2008),Yemi and Seriki (2018) and Tirmizi [ CITATION
research design, secondary data and statistical method in similar with the
present study. Present and past study differed on the respondents and the
present study, it can be said that the study has a personality of its own and is nor
Chapter III
RESEARCH METHODOLOGY
respondent of the study, sampling design, the data gathering instrument utilized
treatment of data employed as well as the assumption of the study. These factors
are very important in order for the researchers to properly analyze, interpret and
Research Design
arrangement of the measures, factors and the tools applied in the collection and
analysis of data in order to achieve the objectives of a study in the most efficient
performance of the top 10 real estate listed firms. A descriptive study design can
45
be used to find out the present state of affairs (Saunders, Thornhill, & Lew, 2009)
and is applicable in researches to be carried out within little time and with lean
research since it is appropriate for the purpose of data collection and analysis,
This study selects the top 10 real estate companies listed in the
firms are considered as the most significant turning points and challenges that
have had an impact on the Philippine real estate industry. (Remo, 2017) They
had been changing as they have become more meticulous. This is also why
developers are ensuring that their plans and project concepts are attuned to their
prospect and qualify and make sure to offer the best available affordable
study.
46
Sampling Design
This study used secondary data. Secondary data is the data that is already
available having been collected in the past by other parties other than the
has the advantages of being readily available, hence easy to obtain saving time
this study, secondary data was the only applicable option since the study sought
to establish the relationship between stock returns and retained earnings; which
could only be possible by studying past data. This could only be possible by
analyzing the trends and the relationship between the variable which could be
The required data sets were the stock prices, periodic dividends, and
retained earnings for each of the top 10 real estate listed companies for the
period between 2013 and 2017. The data was obtained from Philippine Stock
Exchange. The impact of out-datedness could not arise because the data
considered spanned within the last 5 years between 2013 and 2017.
achieve the objectives of this work. In order for the researchers to have better
results, they had to look for the data that are related to their study. In achieving
those data, they visited the libraries of Batangas State University, and University
of Sto. Tomas. They searched for the list of the top ten of publicly listed real
47
estate companies in the Philippines. The researchers tried to look for the
financial statements of the top ten publicly listed real estate companies through
the use of internet. The obtained data (dividends for the period and the beginning
and end of period stock prices) were used to compute the stock returns which
solved by adding the appreciation in the price plus any dividends paid, divided by
the original price of the stock – the dependent variable for each company for the
last five years. The independent variable –periodic retained earnings divided by
the annual income for the period, was also obtained from company annual
reports. The study used the annual reports found in internet of each listed firms
The reliability and validity of the data obtained from several sources such
as Philippine Stock Exchange, Wall Street Journal, websites of the publicly listed
real estate companies is the most critical aspect ensuring the truthfulness of
The Statistical Package for Social Sciences (SPSS) was used in the
statistical analysis of data. The following are the specific statistical tools that were
used:
relationship between retained earnings and stock returns. -Effect lang tayo, not
their relation.
Mean. This method was used by the researchers for the descriptive
P-value.
F-value.
Coefficient.
While conducting the study, the researchers were able to formulate some
assumptions. The researchers assumed that among the publicly listed Real
largest Philippine real estate developer since they had the biggest capitalization
as compared to others. They also assumed that the variables used in the study
In addition to this, they also assumed and considered that the data obtained were
dependable and the statistical tools used in the study were appropriate. The
reliability and validity of the data used were also assumed in this study.
49
CHAPTER IV
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
data from the financial statements and annual reports of Top 10 publicly listed
real estates companies in the Philippines. The data presented were analyzed
and interpreted in response to the problem raised in the study. In order to have a
This part of the study presented a brief description of the publicly listed
1.1 Capitalization
Table 1
Descriptive Statistics on the capitalization of publicly listed real estate
companies
while Shang Properties 3 residential projects namely The Shang Grand Tower
Project in Makati, St. Francis Shangrila Place Project and Shangrila Place
A real estate business is the producing, buying and selling of real estate
capitalization. Initialy, the costs intended for the business was spent on opening
and the risk involved because the riskier the project, the more capital needed to
SM, Prime Holdings, Inc. holds the most number of employees with 8,990 people
while Megaworld Corporation and Belle Corporation both had the lowest number
Table 2
Descriptive Statistics on the number of employees of publicly listed real
estate companies
the publicly listed real companies, it takes 1,564 employees to keep the
since it holds the largest number in projects, specifically the two large scale
provinces; and the 40-hectare Pico de Loro, which is the Phase 1 of Hamilo
Batangas. For a real estate business, it does need a lot of people to create
However, Belle Corporation has the lowest number of employees because they
resort complexes, continued to be among the top leisure and resort destinations
away from the hustle and bustle of Metro Manila. In 2017, Belle’s real estate
development and related activities made a strong showing with P823 million in
revenues, a strong 38% increase from P596 million in 2016.[ CITATION Bel18 \l
1033 ]
According to [ CITATION Kim18 \l 1033 ] real estate business has three major
activities; house recruiting: real estate agent establishes a contact with the
buyers, visit that real estate agent shows the real estate property to the
potential buyers; and sale that help the buyer and the seller of the real estate
property making the transaction. From this, employees on real estate business
are not of quantity but the the quality they have as an asset to the company.
are, at least in part, a result of the inherent differences in small and large firms.
Small firms are often younger (indeed, they are sometimes recent startups),
more likely to be in rural areas, and more apt to be in industries with lower
business employment in the rest of the world’s rich economies is that all have
some form of universal access to health care. The high cost to self-employed
business of the top 10 publicly listed real estate companies in the Philippines,
Starmalls, Inc. had been up for 49 years while both 8990 Holdings, Inc. and
55
Achor Land were 14 years ago established making them the youngest among
them.
Table 3
Descriptive Statistics on the years of business existence of
publicly listed real estate companies
Table 3 shows the number of years from when the publicly listed real
estate companies are established. The minimum year is 14 years while the
maximum year is 49 years meaning that these real estate business are averagely
over 30 years from now. Starmalls Inc. has been up for 49 years with different
Masterpiece Asia Properties, Inc. and Manuela Corporation. The subsidiaries are
lease, the supervision of land development and construction and the marketing
and selling/leasing of its products. [ CITATION PSE18 \l 1033 ] On the other hand,
8990 Holdings Inc. and Anchor Land Holdings, Inc. has been up with 14 years
vast innovation on the modern world. The real estate industry’s steady growth in
the past decades is attributed to the increase in demand for residential and
56
services firms can be considered as the most significant turning points and
challenges that have had an impact on the Philippine real estate industry (Remo,
2017).
Total assets are the sum of all the current and non-current assets and
must be equal to the sum of total liabilities and stockholder’s equity. Assets in
It showed that Ayala Land Inc. has the largest amount of total assets
among the top ten publicly listed real estate companies in the Philippines. It has
assets of Ayala Land as for the year end 2017 were P 218,560,955,000 among
134,616,390,000.
On the other hand, it showed that Anchor Land Holdings, Inc. has the
Holdings, Inc. as for the year end 2017 were P 12,416,172,791 among which
assets were extremely composed of Real estate for development and sale with
3,119,503,219.
over which they have expended over time to yield benefits for the owner. Ayala
Land Inc. holds the maximum amount of total assets because they strive to
prioritize hiring within the community, city, or province where they are located
and give opportunities to local businesses and brands. They currently present in
55 growth centers across the Philippines expanding the role as catalysts and
employment in Metro Manila and provinces in Luzon, and the past five-year
Anchor Land Holdings, Inc., since it had recently started has the lowest total
assets from its real estate-related revenues, P1.19 billion. These were
The large amount of total assets is from its real assets because of its
nature in the buying and selling of estate properties. Accordingly, real estate
cycles have been a significant underlying reason for the financial successes and
as a growing industry focus on real estate as a distinct asset class that deserves
estate cycle theory and analysis. Moreover, the inflexible, immobile condition of
property makes it highly essential to convert the internal corporate one-way road
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60
Figure 6
Trend of retained earnings using the Retention ratio of top 10 Publicly
Listed Real Estate Companies from 2013-2017
This figure shows the average retention ratio of the top 10 publicly listed
this graph, these companies differed on how they retained their earnings.
Filinvest land, Inc. have the greatest retention of earnings with the ratio of 8.28
whereas 8990 Holdings, Inc. ratio have the smallest ratio with only 1.97.
and profit. By attracting new customers, adding new business locations or adding
new products, your business can increase its number of revenue streams and
hopefully generate increased profit from them. Adding new sources of income
also helps insulate your business from the risks of operating with one primary
not get cash distributions from their shares, they can feel more confident that the
company wants to grow. Over the long run, growth in the size and profit potential
and have got many advantages. As internal source, retained earnings are readily
available for use. Also, retentions are cheaper than external equity, do not cause
61
perceive that the company has potential investment opportunities. However, they
have demerits in that retained earnings are a limited source of financing, and the
fact that they have a high opportunity cost since they are a foregone dividend by
would prefer to plow earnings back into its business if it believes that it can
reward its shareholders by increasing revenues and profits at a faster pace than
2017)
investors expect a reasonable dividend, the retention ratio is typically quite low
The retention ratio may change from one year to the next, depending on
consumer staples are likely to have more stable payout and retention ratios than
6.04
5.36 5.39
5.12 4.94
Figure 7
Trend of Retention Ratio of Publicly Listed Real Estate Companies from
2013-2017
As shown in this figure, the retention ratio of the top 10 Real Estates in the
Philippines based on the capitalization have highly increased from year 2013 to
2014, but in year 2015 it decreased and increased again in 2016 but slightly
Factors that may cause the retained earnings increase or decrease are those
separate line item on a company balance sheet, the portion of retained earnings
that are not intended for shareholder distribution are used by management to
Campbell (2012), notes that the prime idea behind earnings retention is
that the more the company retains the faster it has chances for growth. The study
earnings on firm value and shareholders wealth. The major findings suggested
that retained earnings had played a vital role in expansion activities and
benefited sample firms in achieving desired growth. As value of sample firms was
of the company want a higher earnings retention ratio, the shareholders of the
company would think otherwise, as the higher the plowback ratio the more
sum of profits less dividends since inception, older companies may report
significantly higher retained capital than identical younger ones. This is why
companies of the same age and within the same industry, and the definition of
2018)
Figure 8
Stock returns of Publicly Listed Real Estate Companies from 2013-2017
This figure shows the average stock return of the top 10 publicly listed real
graph, Anchor land have the biggest stock returns with the percentage of 146
function of the market's perception of the value of the future profits a company
can create. Sometimes this perception is spot on; sometimes it is way off the
mark. But over a longer period of time, the market tends to get it right, and the
65
business.
Common terms in relation to stock return are relative and absolute stock
advances that the latter measure does not care if a stock outperformed or
underperformed a market; all that matters is that our stock performed well or not.
Also, investors who are inclined to the latter measure more than the former tend
Other concepts related to stock returns are total stock return and total
stock return cash amount. Total stock return includes an appreciation in the price
plus any dividends paid, divided by the original price of the stock.
0.26 0.21
0.13
0.03
2017 2016 2015 2014 2013
Figure 9
Trend of stock returns of Publicly Listed Real Estate Companies from 2013-
2017
66
As shown in the figure 2, the stock returns of the top 10 Real Estates in
the Philippines have continuously increased in the first three years but
aggressively decreased in the fourth year and increase again in the fifth year.
important to evaluate the big picture and not just one return metric when
amount in capitalization results in a lower stock return. The small firm effect is a
theory that holds that smaller firms, or those companies with a small market
anomaly is a factor used to explain superior returns in the Three Factor Model,
created by Gene Fama and Kenneth French — the three factors being the
period bias. The time period examined when looking for instances in which small
cap stocks outperform large caps largely influences whether or not the
researcher will find any instance of the small firm effect. At times, the small firm
effect is used as rationale for the higher fees that are often charged by fund
According to Al (2012) the most important factors that affect the stock
return and the excessive volatility as well as where the investors rely on to take
the size of the company. Another study, discussed other factors affecting stock
ratios and macroeconomic variables are significantly affecting the stock returns.
As shown in the graph, an abnormal decreased of stock returns from year 2015
to 2016 are based on the study of Frisch (2014) wherein it tests for under
abnormal returns on the stocks following large price rises and drops. The results
of the empirical investigation suggest that large price increases and declines are
intervenes
Unstandardized Standardized
Coefficients Coefficients
Deci Verb
sion al
Interp
Std. retati
Model B Error Beta t Sig. on
1 (Cnstn) .950 .556 1.708 .163
retntion .059 .065 .314 .904 .417 FR NS
years -.027 .013 -.719 -2.017 .114 FR NS
assets -2.054E-9 .000 -1.010 -1.161 .310 FR NS
emplys -8.807E-5 .000 -.549 -.843 .447 FR NS
68
Table 5
Descriptive Statistics on the Relationship of Retained Earnings and Stock
Returns when profile intervenes
Table shows that the profile of the business’ years of existence has no
significance when it comes to the effect of retained earnings to the stock returns
of publicly listed real estate companies in the Philippines. It can be seen from the
value of .114 which is less than the p value of .517 which means that the years of
operation of this publicly listed real estate companies do not matter with regard to
Starmalls Inc. has been up for 49 years with different achievements who
Properties, Inc. and Manuela Corporation. The subsidiaries are involved in the
8990 Holdings Inc. and Anchor Land Holdings, Inc. has been up with 14 years
vast innovation on the modern world. The real estate industry’s steady growth in
69
the past decades is attributed to the increase in demand for residential and
services firms can be considered as the most significant turning points and
challenges that have had an impact on the Philippine real estate industry (Remo,
2017).
Table shows that the profile of the business’ total assets has no
significance when it comes to the effect of retained earnings to the stock returns
of publicly listed real estate companies in the Philippines. It can be seen from the
value of .310 which is less than the p value of .517 which means that the total
assets of this publicly listed real estate companies do not matter with regard to
shareholders. These funds are also held in reserve to reinvest back into the
income a company generates before any expenses are taken out. Revenue, or
increases in revenue through sales and investments boosts profits or net income.
70
Although Ayala Land Inc holds the maximum amount of total assets
because they are striving to prioritize hiring within the community, city, or
province where they are located and give opportunities to local businesses and
brands, it does not assure significance of its total assets on the effect of the
growth centers across the Philippines expanding the role as catalysts and
provinces in Luzon, and in the past five years we started to grow our
investments in Palawan, Western and Central Visayas, and in the Northern and
Corporation, since it had recently started has the lowest total assets from its real
estate-related revenues, P1.12 billion was derived from Belle’s lease of the land
and buildings comprising City of Dreams Manila to Melco, with the balance of
P478 million coming from sales of real estate products and property
The large amount of total assets is from its real assets because of its
Pyh99 \l 1033 ] real estate cycles have been a significant underlying reason for
the financial successes and failures of real estate investments throughout history.
and dynamic impacts on real estate returns, risks and investment values over
implications of real estate cycle theory and analysis. Moreover, the inflexible,
1033 ]
Table shows that the profile of the number of employees in the business
has no significance when it comes to the effect of retained earnings to the stock
returns of publicly listed real estate companies in the Philippines. It can be seen
from the value of .447 which is less than the p value of .517 which means that
the number of employees in the business of this publicly listed real estate
companies do not matter with regard to retained earnings and stock returns.
According to (Kimmons, 2018) real estate business has three major activities;
72
house recruiting: real estate agent establishes a contact with the seller of a real
estate property in order to represent him to the potential buyers, visit that real
estate agent shows the real estate property to the potential buyers; and sale that
help the buyer and the seller of the real estate property making the transaction.
From this, employees on real estate business are not of quantity but the quality
are, at least in part, a result of the inherent differences in small and large firms.
Small firms are often younger (indeed, they are sometimes recent startups),
more likely to be in rural areas, and more apt to be in industries with lower
economies of scale, such as services. Small firms can represent a life stage
before economies of scale are reached (or hoped-for future growth is attained),
or they can be a stable anchor in the marketplace. These age, location, and
industry effects constitute the basic differences between small and large firms
and can lead to different workforce needs and different resources to attract
4.4 Capitalization
Present, past and future earnings of the company generally guide the
earnings into dividends, and retained earnings is taken into account by the
retained earnings and stock returns has an effect when the capitalization of the
dividend policies and other external factors, while retained earnings determinants
retained earnings.
After reviewing the information gathered from the study, the researchers
stock return. The researchers believed that through the proposed material, they
will be able to give participants and other beneficiaries more knowledge about
how stock return was affected by the chosen variables. Though that, they will be
Chapter V
SUMMARY, FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
salient findings, the conclusions drawn from the findings, and the
recommendations.
Summary
This study aimed to identify the effect of retained earnings to firm’s stock
returns on the top ten publicly listed real estate companies. More specifically, the
employees, years of existence and the total assets. As well as, the trend analysis
of both retained earnings and stock returns from 2013-2017. And last, if retained
publicly listed real estate companies in the Philippines ranked based on their
capitalization. This study utilized secondary data which covers from 2013-2017.
The statistical treatment tools used the mean, standard deviation, ANOVA, linear
Findings
SM Prime Holdings has 8,990 people and in terms of total assets, Ayala Land
2. The retained earnings reported in 2013 using the retention ratio was
4.94; in 2014, 6.04; in 2015, 5.12; in 2016, 5.39; and in 2017, 5.36.
3. The stock returns reported in 2013 was 0.13; in 2014, 0.21; in 2015
intervenes has a p-value of .0517 and f-value of .993. Therefore, failure to reject
the hypothesis.
5. Pamphlet is the material that can be produced to inform the real estate
earnings and stock returns. Using the IEC material, information about retained
earnings and stock returns are discussed in a very simple way, introducing real
estate. Also, the debate regarding on the relationship and effect of retained
Conclusions
following:
1. The researchers found out that the total number of employees are
generally low this is because, according to (Fidalgo, 2012) the company focuses
more on the expertise of its employees to carry out the business than the
Real estate business on the list of top 10 are averagely over 30 years
78
from now meaning that the past decades had an increase in demand for
explains that a lot of real estate businesses now are focused on acquiring and
maintaining the real assets therefore the large portion of the assets are focused
on it.
2. The study revealed that the retained earnings of the top 10 Real
Estates in the Philippines are constantly changing. This is because they differed
Also, increases in retained earnings are positive, though high retained earnings
may be viewed negatively by shareholders at times. Factors that may cause the
income or loss from operations. It is noted that the prime idea behind earnings
retention is that the more the company retains the faster it has chances for
growth.
3. The stock returns of the top 10 Real Estates in the Philippines are
03 percent in year 2016. Accordingly, the most important factors that affect the
stock return and the excessive volatility as well as where the investors rely on to
and the size of the company as well as previous year’s returns, financial ratios
dependent variable which is the stock returns when its predictors which are
intervenes. Therefore, the study had failed to reject the hypothesis. Meaning, the
decision between how the companies would reserve for reinvestment toward
enhancement of corporate value cannot affect the returns of the firm to its
Recommendations
recommendations:
1. The real estate companies and other corporate organizations need not
stock returns. They should retain earnings only when there are investment
projects with a positive net present value. This requires that the managers should
carry a succinct analysis of the available projects to ensure maximum returns are
in current periods instead of those that pay less. This should be the case
because organizations which retain more seem to create less return for the
earnings and stock returns involving different external economic factors that