Chapter 2.

Literature Review

Barakat (2014) in his research paper discussed the impact of Capital structure, Leverage
and Profitability on Stock price of the firm and Saudi industrial companies were taken as sample.
His research paper specified that stock price is measured in terms of stock market value of the
firm; capital structure is a mix of long-term liability and equity, financial leverage through short
term debts to total assets and profitability in terms of Return on Equity. The research concluded
that Stock price is directly affected with changes in return on equity and capital structure and not
influenced by change in financial leverages. He also highlighted the finding that stock price is
highly influenced with change in capital structure as compared to Return on Equity. Prospect
value of any firm is determined by analyzing financial structure and return on equity of that firm.

Hunjra and Mustafa (2014) did a research work on influence of Dividend Policy, Earning
per Share (EPS), Return on Equity (ROE) and Profit after Tax on Stock Prices. The study was
conducted on 63 KSE listed firms of four non-financial sectors (Sugar, Chemicals, Food and
personal care Energy) of Pakistan by considering their panel data for the period of five years
(2006 to 2011). Share price was taken as dependent variable while Independent variables were
dividend policy, dividend payout ratio, earning per share (EPS), return on equity (ROE) and
profit after tax. Least square regression model was used to determine the relationship between
dependent and independent variables. The results of the research concluded that Dividend yield
has negative significant impact on share prices and dividend payout ratio, Earnings per share
(EPS) and profit after tax has positive significant impact on share prices while ROE has positive
insignificant impact on share price. This specifies that firms with higher dividend payout, higher
EPS and higher profit after tax has high share prices.

Sharif, Nawaz and Ali (2017) studied to find the robustness of Earning per Share (EPS)
in determination of stock. The study was conducted over fertilizer sector of Pakistan by
considering a sample of five stock exchange listed fertilizer companies and their 12 years data
(2004 – 2015) from their annual reports. The author conducted linear regression Pearson
correlation test and used EPS as an Independent variable and stock price as a dependent variable.
The research paper specified the link between the EPS and the share prices. The study concluded
that there is a strong causal relationship between EPS and share price. So, the investors must
consider the EPS of the stock as a fundamental variable with other economic variables as EPS
can fluctuate the market share price.

Idawati and Wahyudi (2015) studied the Effect of Earning Per Shares (EPS) and Return
on Assets (ROA) against Share Price on Coal Mining Companies Listed in Indonesia Stock
Exchange. The objective of the study was to determine the percentage decrease in EPS and ROA
due to increase in stock price. The study was conducted on 11 coal mining listed firms of
Indonesian Stock Exchange based on opportunity sample. For the research purpose panel data
was used for a period of four years (2009 -2013) and linear regression model (ordinary least
square, random effect and fixed effect) was used for comparison between independent variables
(EPS and ROA) and dependent variable (stock price). The research concludes that EPS has
partially significant effect of stock price while ROA partially does not have any significant effect
on stock price. The EPS and ROS jointly have a positive and significant impact of stock price of
the coal mining firm of Indonesian Stock Exchange.

Dahmash (2012) studied to find the effect of different variables that impact the stock
prices of Jordan Public listed insurance companies. For his study he took ROA, ROE and ROI as
independent variables. In his study he tested the relationship separately as well as in all together.
It was revealed that share prices are dependent on ROA, ROE and ROI if considered together.
They have a strong and positive relationship. While when the impact of these Ratios (ROA, ROE
and ROI) on share prices was tested separately, it was revealed that though ROA and ROI have a
positive relationship with market share price, but the relationship is not strong, it’s weak.
Furthermore, ROE has no relationship with market Share Prices.
 References

Barakat, A. (2014). The Impact of Financial Structure, Financial Leverage and Profitability on

Industrial Company’s Shares Value (Applied study on a sample of Saudi Industrial

Companies). Research Journal of Finance and Accounting, 5(1), 55 - 66

Hunjra, A., Ijaz, M., Chani, M., Hassan, S., & Mustafa, U. (2014). Impact of Dividend Policy,

Earning per Share, Return on Equity, Profit after Tax on Stock Prices. International

Journal of Economics and Empirical Research. 2(3), 109-115.

Sharif, N., Ahmad. N, & Ali, T.Y. (2017). Robustness of EPS in Determining Share Price: An

Empirical Evidence from PSX. Pakistan Journal of Engineering Technology and Science

(PJETS) 7(2), 117 – 124.

Idawati, W., & Wahyudi, A. (2015). Effect of Earning per Shares (EPS) and Return on Assets

(ROA) against Share Price on Coal Mining Company Listed in Indonesia Stock

Exchange. Journal of Resources Development and Management, 7(1), 79 - 91

Dahmush, F.N., & Kabajeh, M.A.M. (2012). The Relationship between the ROA, ROE and ROI

Ratios with Jordanian Insurance Public Companies Market Share Prices. International

Journal of Humanities and Social Science. 2(11), 115-120