Business Research Method Report

Submitted To:
Dr. Samiul Parvez Ahmed
Assistant Professor,
School of Business
Department of Finance
Independent University, Bangladesh (IUB)

Course Title: Business Research Method

Course ID: Bus-485
Section: 04
Date of Report Submission: 2nd April, 2018

Submitted By: The Analysts

Md. Iftekhar Rahman 1420939
Md. Ashiqur Rahman 1410266
Sumon Dhali 1230083
Abu Hasan Tareq 1411197
 LETTER OF TRANSMITTAL

2th April, 2018

Dr. Samiul Parvez Ahmed

Department of Finance

Assistant Professor, School of Business

Independent University, Bangladesh

Subject: Submission of Research Report.

Dear Sir,

This is to inform you that we are the students of your BUS-485 section-04. It gives us pleasure
that we have completed the report titled determinants of Share Price. We are very happy to submit
this report on the topic you provided us. During preparing this report we have gathered extended
knowledge on working procedure of identifying the relationship between dependent and
independent variables. This report is based on secondary data from company annual report.

We have tried our level best to use the knowledge that we have got through this course. We hope
that our report will give you the enormous pleasure according to your requirement.

We would like to request you to accept our report for further assessment.

Sincerely yours,

Md. Ashiqur Rahman (On behalf of Group Members)

Section: 04

Independent University, Bangladesh (IUB)

 ACKNOWLEDGEMENT

The success of this Research Report depends on the contribution of a number of people, especially
those who take the time to share their thoughtful guidance and suggestion to improve this Research
Report. First of all, we would like to pay our gratitude to almighty Allah, who has given us patience
to complete this Report. Because working on this report for a month and then preparing a report
regarding our experience is quite tedious job.

We would like to thank Independent University, Bangladesh (IUB) for planning such a course that
gave us the chance to gather practical knowledge about what we learnt in previous classes. The
knowledge we gathered throughout the course would help us to develop our future career. Then
we would like to express our gratefulness to our faculty of Business School Dr. Samiul Parvez
Ahmed in Independent University (IUB) who supported us sharing his knowledge according on
this report and showing the right way to put our effort in right place.
 EXECUTIVE SUMMARY

This report is entirely based on Determine of Share Price in companies. For the purposes of this
report, five independent variables have been identified namely ROA, SIZE, DIV, EPS, P/E. A
research has been conducted to find out if either of this affects the dependent variable (Determine
of Share Price). The details of each of this variable have been provided in the introduction as well
the literature review.

We used Past 5 years data, starting from 2013 to 2017, have been collected and noted down for
each of the dependent and independent variables. Lankabd Website, Dhaka stock exchange and
other articles have been used as source for data collection. The data have been used in excel in
order to construct a regression model equation.

The regression model has been used to find out the relationship between the variables of
independent and dependent variables and an explanation of each of the circumstances has also
been presented.

Finally the regression equation along with the most recent categorized data, which has been used
to investigate or study the equations. The changes are noted down and finally a conclusion is given
here appropriately.
 Table of Contents
Introduction ................................................................................................................1
Problem Statement .....................................................................................................2
The purpose of the study ............................................................................................3
LITERATURE REVIEW ..........................................................................................3
Dependent Variable ................................................................................................3
Share price ...........................................................................................................3
Independent Variable ..............................................................................................4
Dividend per share (DPS) ....................................................................................4
Earnings Per Share (EPS) ....................................................................................6
Price-earnings ratio (P/E) ....................................................................................9
Total Asset (SIZE) .............................................................................................11
METHODOLOGY...................................................................................................15
Conceptual Framework .........................................................................................15
Hypotheses ............................................................................................................16
Sampling ...............................................................................................................17
Data Collection Method ........................................................................................18
Data Analysis ........................................................................................................18
DESCRIPTIVE STATISTICS .................................................................................19
Common Sample...................................................................................................19
Correlations ...........................................................................................................21
Estimate Equation & Regression Analysis ...........................................................25
Conclusion ...............................................................................................................27
 Introduction

Bangladesh is a developing country & energy infrastructure is quite small, insufficient and poorly
managed. Electricity is the most potential for foundation of economic growth of a country and
constitutes one of the vital infrastructural inputs in socio-economic development .The world faces
a surge in demand for electricity that is driven by such powerful forces as population growth,
extensive urbanization, industrialization and the rise in the standard of living.

Bangladesh with its 160 million people in a land mass of 147,570sq km. In 1971, just 3% of
Bangladesh’s population had access to electricity. Demand for electricity in Bangladesh is
projected to reach 34,000 megawatts (MW) by 2030 and the Government of Bangladesh has plans
to increase power generation beyond expected demand to help propel growth in the export-oriented
economy and to meet the demands of a growing middle class. Total investment in the sector over
the next 15 years is estimated at $70.5 billion. While installed generation capacity is 13,179 MW
as of February 2017, shortfalls exist due to poor distribution infrastructure and a mismatch between
the types of energy plants and fuel mix available. Private power production units are approaching
half of total installed capacity.

In the securities market, whether the primary or the secondary market, the price of equity is
significantly influenced by a number of factors which include book value of the firm, dividend per
share, earnings per share, price earnings ratio and dividend cover (Gompers, Ishii & Metrick,
2003).

However, considering the above importance of share prices and also considering the factors that
impact on share prices, different authors have attributed different factor to share price changes.
Prior researchers (Almor-omer & Mutari, 2008; Khan, 2009; Someye et al., 2009; Udding, 2009)
have attributed book value per share, earnings per share, dividend, gross domestic product and net
asset value has factors that determine share prices.

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 Problem Statement

The main purpose of the review was to qualitatively establish the determinants of share prices in
Bangladesh. The review was carried out in 2017 before the situation in Bangladesh deteriorated to the
level where it is at the moment. To gather the information that we wanted we used interviews and the
archival method. We targeted the people in the various companies related with Power and Fuel
organizations that are registered on the Dhaka Stock Exchange (DSE), stock exchange staff, stock broking
firms, investment analysts and chief executives. We concluded that there are economic, political and
social factors that determine stock prices in Bangladesh.

However, economic and political factors were established to be the dominant factors in the
determination of stock prices. We concluded that if the stock exchange is to perform well the economic
and political situation in the country has to be stable. In other words government has to take some
deliberate steps to ensure that the economy of the country is well run and also that there is political
stability.

Much research has been done around the world on the determinants of share prices but there has few
research that found a significant negative relationship to share prices. One of such research was
conducted by Sinha (1994) presented a study over a period of 1981 to 1992 by using fully modified
ordinary least squares techniques. The study identified the empirical relationship between share price
determinants and dividend, leverage and price earnings ratio have negative impact of share price.

Returns from such equity investments are however subject to vary depending upon the performance of
the particular stock and movement in stock price. Fluctuation in stock prices may occur due to the supply
and demand forces. serving a critical need of raising capital funds for companies at a reasonably low cost
as it provides a critical link between companies that need funds to set up new businesses or to expand
their current operations and investors that have excess funds to invest in such companies and it provides
a regulated market place for buying and selling of shares at prices determined by supply and demand.

However, the determinants of Share Price have tested way for a long time and still amongst the most
unsolved issues in corporate fund writing. Little structure tested and developed by theories and studies
and created speculations have been tried by exact studies and the hypotheses themselves prompt to
various, not fundamentally unrelated and gave result and conclusion.

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 The purpose of the study

To investigate the relationship between dividend payout, return on equity, return on asset,
size of the firm, liquidity of the firm, earnings per share and risk of the firm to a share prices.
To investigate the effect of dividend payout, return on equity, return on asset, size of the firm,
liquidity of the firm, earnings per share and risk has on share prices.
To draw conclusion on the determinants of share prices

LITERATURE REVIEW

Dependent Variable

Share price
Share price is simply the amount of money it will cost to purchase a share of a company or fund.
Share prices can fluctuate based on a number of factors. If a company releases a glowing earnings
report, then investors will likely feel more optimistic about its potential profitability. Demand for
the share will climb, and so will its price. On the other hand, if a company reports negative earnings
or is the subject of bad press, its share price can quickly fall.

According to Challa and Chalam (2015) Market Price of Share, The market price of the share is
mainly determined by the forces of demand and supply of a particular security in the market. The
market price reflects the collective wisdom and knowledge of the market.

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Independent Variable
Dividend per share (DPS)

Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary
share outstanding. Dividend per share may be a live of the dividend payout per share of ordinary
shares. The live is employed to estimate the quantity of dividends that a financial gain capitalist
would possibly expect to receive if he or she were to shop for a company's ordinary shares. The
live is very effective once caterpillar-tracked on a line, since a standardized quantity per share
indicates management's temperament to form consistent payouts to investors.

The formula for dividends per share, or DPS, is the annual dividends paid divided by the number
of shares outstanding.

A dividend is a distribution of a fragment of a company’s earnings which is decided by the board

of directors of the company and is paid to a class of shareholder of the company.

Though dividend is a small word the way dividend has impact on share prices isn’t always fixed.
Habib Y. et al (2012) stated that “Dividend policy remains controversial issue for many years of
theoretical and impartial research”. By researching on dividend researchers stated that elaborating
dividend policy has been one of the most difficult challenges which are being faced by the financial
economists. Despite of decades of study they have yet to understand factors which stimulates
dividend policy and that manner in which the factors interacts (Bhattacharyya N., 2007). In spite
of being a controversial issue in real life dividend policy is one of the main concerns of the
investors and managers of a company (Stacescu B., 2006). So dividend can be a main factor setting
the prices of the shares in a company. Barker H. K., Weigand R. (2015), Williams et al (1938)
states dividend as an important determinant of a firm. Stacescu B (2006) in his research on
dividend mentioned that maintaining the dividend level is a priority on par with the investment
decisions. In interviews with the executives of different firms they agreed that the availability of
good investment opportunities is an important factor to make decisions on dividend.

In the study of the dividend policy the researchers mainly depend on the two main approaches.
One of the approach is using statistical analysis of the published financial data to examine different
hypothesis about dividend policy. Barker H. K et al (2015) contended that such ex post data can

4
explain surface reality can’t measure motivation. The second approach is using survey
methodology to obtain primary information about dividend policy from financial managers and
other sources. According to Tufano (2001) using different empirical approaches can help validate
the results of quantitative studies using market based research. Survey research complements
researcher based on secondary data and provides additional insights into why firms engage in
dividend policy decisions.

Researchers have tried to explain the importance of dividends by looking for “imperfections” that
can undermine the irrelevance proposition. An important class of models is based on the idea that
the assumption of perfect information may be unrealistic and that dividends can be used as signals
of firm quality. Bhattacharya (1979) builds a two-period model with two types of firms.
Investments are made during the first period; their expected profitability is known to management,
but not to outside investors. In order to signal the quality of their investment, the managers of
“good” firms (managers are assumed to act in the interest of initial shareholders) will commit to
paying high dividends in the second period. Since attracting outside financing (during the second
period) is expensive due to transaction costs, “low-quality” firms will be unable to imitate “high-
quality” ones. The signaling models provide an explanation for the positive stock price reaction to
the announcement of dividend increases or initiations. However, the empirical evidence on this
hypothesis is mixed. In an early study, Watts (1973) found that unexpected changes in earnings
and unexpected changes in dividends were related, although he remained skeptical about the
possibility to make money by exploiting this regularity.

Relationship between Share Price and DPS

Dividends can affect the price of the underlying stock in a variety of ways. While the dividend
history of a given stock plays a general role in its popularity, the declaration and payment of
dividends also has a specific and predictable effect on share price. Raja A. et al(2015) stated that
the common investor focuses on the firm’s dividend policy to expect higher proceeds The dividend
payments of a firm determines the proportion of earnings paid to shareholders and ploughed back
in the firm for reinvestment. . Both are desirable, but they are in conflict; a higher dividend means
less provision of funds for growth and higher retained earnings means low dividends. The

5
investors‟ expectation relies on the share price of the given firm which tends to change by the
declaration of dividends. Dividend payment must increase shareholder’s wealth. The relevance
and irrelevance of dividend announcement and shareholder reaction has been a debate over long
time which conversed in many empirical studies. In study Raja A et al mentioned that “The pioneer
study by Gordon (1963) hypothecated that dividend policy is relevant to the market price of the
share and market value of the firm. The theory suggests if firm does not have viable investment
opportunity the stock value will increase with increase in rate of dividend and vice versa. Very
strong evidence to this phenomenon is the study made by Walter (1963). He also suggested the
same inferences with different approach for valuing share.” (2015:)Dividend increase does not
always mean a signal of good news was studied by In their study, Raja A et al(2015) analyzed
relation between insider trading and dividend announcement. Unlike other models where insider
trading is exogenously stated, in their model it is indigenized. They show insider trading interacts
with the dividend policy choice and affects the effect of dividend announcement in different ways.
They tested their model on companies which made first time initiation of dividends and insider
trading activity data was tried to match to the dividend initiation dates. Their result was that not
all dividend announcements signaled good news, a firm has announced dividend but it has insider
selling the stock, it will lead to negative effect and the reverse holds true when there is insider
buying the stock with the dividend announcement. Therefore, they concluded that an investor must
observe the insider trading activity in conjunction to dividend announcement to understand the
effect of future stock price and earnings.

Earnings Per Share (EPS)

The earnings per share magnitude relation (EPS ratio) measures the number of a company's income
that's on paper obtainable for payment to the holders of its common shares. A corporation with a
high earnings per share magnitude relation is capable of generating a major dividend for investors,
or it should plow the funds back to its business for additional growth; in either case, a high
magnitude relation indicates a probably worthy investment, betting on the value of the stock.
(Accounting Tools)

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The term earnings per share (EPS) represents the portion of a company's earnings, net of taxes and
preferred stock dividends, that is allocated to each share of common stock. The figure can be
calculated simply by dividing net income earned in a given reporting period (usually quarterly or
annually) by the total number of shares outstanding during the same term. Because the number of
shares outstanding can fluctuate, a weighted average is typically used (Besely 2006, P.20)
The equity shareholders area unit the only real applier to Infobahn earnings of the corporation
when creating payment of dividend to the preference share-holders. The earning per share is one
among the simplest measures of profit. It additionally helps in sticking out the worth of security,
which depends upon the expected future profit and risk related to it. Higher the magnitude of
expected future advantages, higher are going to be worth of a security and viceversa. The
increasing earnings per share usually indicates the expansion of a corporation and leading to high
value.

The earning per share has a positive relationship with market price, i.e., higher the earning per
share, higher will the market price. (Ball and Brown 1968; Baskin 1989)

Brackney, Collins, and Mautz (1998) analyzed the potential effects of these new EPS rules and
concluded that SFAS No. 128 will result in a mate rial increase in EPS for a "significant minority"
(approximately 20 percent) of companies. These increases will result from the replacement of pri
mary EPS with basic EPS: By definition, basic (undi luted) EPS will always be greater than or
equal to primary EPS. Jennings, LeClere, and Thompson (1997) compared the usefulness of
alternative EPS measures as an explanation for cross-sectional dif ferences in stock prices and
found that "diluted EPS explains more of the variation in stock prices than either basic or primary
EPS" (p. 31).

EPS is one of the financial ratios that were able to show how big the benefits of shareholders per
share. In some literature, we can find that the opinions expressed in EPS classify into types of
financial ratios .Donald E. Kieso et al. (2011) grouped into types EPS profitability ratios and stated
that: “A Company customarily sums up the results of its operations in one important figure: net
income. However, the financial world has widely accepted an even more distilled and compact
figure as the most significant business indicator-earning pershares”. Earnings per Share indicates
the income earned by each ordinary share. Thus, companies report earnings per share only for
ordinary shares”.

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After knowing the condition of profit, the next question is, whether the rate of return offered by
the company is quite attractive compared with the returns of other companies in the same group.
Financial ratios that can answer that question is EPS. Brigham and Houston (2009) stated that
"there is a high correlation between EPS, cash flow, and share price". By observing the level of
EPS, investor or market analyst can compare the stock which is more profitable. William J. O'Neil
(2003) states that "fluctuations in EPS is the only element important for the process of selecting
the best leading stocks today. The higher percentage increase in EPS, the better ".

Relationship between Share Price and EPS

The scope of this report is mainly deals with the capital market. Actually what we can see that is
EPS and stock price movement has both positive and negative relationships. If the results is inverse
then what are the factors that relate with it. So the scope of this report is stars with the
microeconomic factors of the company.

Ball and Brown (1968) first used the security Abnormal Performance Index (API) to measure the
variation of annual stock price. Freeman (1987) investigated the relationship between the
accountings earnings and stock returns in big companies and small companies. Beaver, Lambert
and Morse (1980) reverse the direction of the relationship and examined the information content
of prices with the change in earnings as the dependent variables and find the variations of stock
prices have significant correlation with the variations of earnings.

While a company's EPS will often influence the market price of its stock, the relationship is rarely
inverse. The company's EPS is determined by dividing the earnings by the number of outstanding
shares. The market price of each share is immaterial. ..The relationship between the stock prices
and EPS of the electronic firms listed on the Taiwan Stock exchange (TSEC). The panel based
tests suggest that stock prices are cointegrated with EPS, while the individual stock prices do not
show cointegration with EPS. We can make a primary conclusion that stock prices moves with
EPS in the long-run, but not necessary at the same rate. Furthermore, there exists an inverse
relation between the growth rate of operating revenue and the degree of EPS impact on stock
prices. Finally, we found evidence that EPS could impact stock prices, and the “Earnings
Information Content” exists in the listed electronic industries in Taiwan.

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In this study we focus on examining the relation between stock prices and EPS in Taiwan’s stock
market. After testing whether or not both series are non-stationary, we will use Pedroni (1995,
1999, 2000) panel cointegraion test to determine their long-term relationship. It means that we will
test whether stock prices and EPS are cointegrated. Furthermore, in order to determine the
magnitude that stock prices responds to EPS, we use Kao and Chiang (2000) and Pedroni (2000,
2001) panel cointegration method to estimate the unbiased ERCs. Finally, we investigate whether
there is a difference for dissimilar growth rate of operating revenue.

Price-earnings ratio (P/E)

The P/E ratio measures the relationship between a company's share price and its earnings per share
of share issued. The P/E ratio is calculated by dividing a company's current share price by its
earnings per share (EPS). If you don't know the EPS, you can calculate it by subtracting a
company's preferred dividends paid from its net income, and then dividing the result by the number
of shares outstanding. Many research has been done to determinants of share prices around the
world but very little research has been done in Asia whether motivates the purpose of this study.
One of such research was conducted by India (1992) who investigated the relationship between
price-earnings (P/E) ratio and of share prices for companies in Indian share exchange from 1991
to 1992. The price-earnings ratio is defined as the ratio of current price to expected earnings. The
significance of the P/E ratio is derived from the perpetual growth dividend discount model for firm
valuation. A similar study was conducted by Beaver and Morse (1978) in a study of the P/E ratios
in the US find that the P/E ratios correlate negatively with the earnings growth in the current year
and positively with the earnings growth in the subsequent year, suggesting that investors are fore-
casting only short-lived earnings expectation. They also find that the P/E ratio can vary positively
or negatively with market risk depending upon the market conditions in a given year. Strategies
based on the P/E ratio have been analyzed by Basu (1983 and 1977). These studies show that low
P/E shares tend to earn positive risk adjusted excess returns. This has been one of the more
enduring anomalies in finance and many share selection strategies recommend using the P/E ratio
for selecting undervalued shares. Presumably, the high P/E ratio would render the Indian equity
market unattractive for foreign investors so that the expected inflow of foreign funds would not
occur. This argues that the measured P/E ratio, based on the most recent reported earnings, may
be high because of abnormally low earnings in the recent past. Perhaps the market does not expect

9
this to the future so that with more normal earnings the measured P/E ratio will be lower.
According to this a high P/E ratio implies allow expected rate of return, r, by holding the firm's
equity as in the case of a low risk firm. However, a high P/E ratio is consistent with a high r if the
payout ratio is low and ROE > r so that the firm has a high growth rate through positive NPV
opportunities. This would be the case with high risk high growth firms. Therefore, a high P/E ratio
implies either or both a lower market capitalization rate or more valuable growth. P/E ratio has a
significant negative correlation with the growth in gross profits during the past year. This implies
that shares with relatively low earnings growth during the year tend to have relatively high P/E
ratios. This is consistent with the argument that investors perceive changes in earnings to have a
transitory component and price shares accordingly.

Thus the high P/E shares will be those for which there is a negative transitory component, i e, the
realized earnings was below expected earnings, and conversely for the low P/E shares. This may
also be applicable to the market as a whole the earnings overall may have been lower than expected
resulting in a relatively high measured P/E ratio. P/E ratios are calculated as the ratio of price to
the most recent actual earnings and not expected earnings as the definition requires. Calculated
this way the P/E ratio may be high, irrespective of the capitalization rate and growth opportunities,
if there has been a decline in earnings and the market perceives it to be transitory. Moreover,
earnings per share is an accounting number and will be influenced by the accounting practices of
the company with respect to such items as depreciation and inventory valuation. Finally, the
positive correlation between the P/E ratio and the payout ratio must be interpreted carefully.
According to the perpetual growth model there is a negative relationship between the P/E ratio and
the payout ratio if growth is financed internally and the return on equity is higher than the
capitalization rate. In the context of international investment a high P/E ratio is considered
unattractive because it implies a low capitalization rate. However, in a risk-return framework the
capitalization rate should not be considered in isolation but along with the risk that securities would
contribute to an international portfolio.

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Relationship between Share price and P/E ratio

While a company's share price reflects the value that investors are currently placing on that
investment, a share's P/E ratio indicates how much investors are willing to pay for every dollar of
earnings. The market price of a given share is needed to calculate its P/E ratio, but in many ways,
the P/E ratio offers better insight into the share's growth potential.

Generally speaking, a high P/E ratio indicates that investors expect higher earnings. However, a
share with a high P/E ratio is not necessarily a better investment than one with a lower P/E ratio,
as a high P/E ratio can indicate that the share is being overvalued. If you invest in an overvalued
share, you run the risk of losing money if it doesn't meet investors' high earnings expectations.

On the other side, when a company's share has a low P/E ratio, it may indicate that the share is
undervalued. Investors can often buy undervalued share at a discount and then profit when the
price of that share climbs. That says, sometimes a low P/E ratio reflects a genuine lack of growth
potential.

Now can compare a company's P/E ratio with that of similar companies in its industry to get a
sense of whether the share you're looking to purchase is overvalued or undervalued.

Total Asset (SIZE)

Total assets refers to the total amount of assets owned by a person or entity. Assets are items of
economic value, which are expended over time to yield a benefit for the owner. If the owner is a
business, these assets are usually recorded in the accounting records and appear in the balance
sheet of the business.

Brockman and michayluk (1997) argue that the distinction between the effect of firm size and
share price is important for the direction of future research. Specifically where size is shown to be
important, research is likely to focus on alternative models for assectreturn.Wherepriceis important
the market microstructure warrants closer examination as possible explanation for abnormal
return.

Seyyed Mahmoud Mousavi and NavidMehrzad (2012) aims to investigate the relationship between
conservatism and abnormal stock returns, positive and significant relationship between the ratio

11
of book value to market, and the fact that there is no significant relationship between accruals and
abnormal stock returns was confirmed in this research .Several empirical studies use firm size,
proxied by market value (MV), as an independent variable in returns models. Banz (1981) and
Fama and French (1992) wrote prominent early papers that empirically document the negative
“size effect” on stock returns. Specifically, low MV stocks tend to give higher future returns, which
are not explained by the Capital Asset Pricing Model. However, no theoretical justification is given
for the “size effect”.

There have been many explanations of why a size effect may exist and why it may not be captured
by beta. Stoll and Whaley (1983) suggest that transaction costs may partially explain the excess
returns earned by small stocks. Also, small firms are more “marginal” than larger firms. They are
poor and inefficient performers that are particularly vulnerable to adverse economic conditions.
Chan and Chen (1991) support this conjecture with their finding that 66% of firms in the bottom
size quintile got there by falling from larger firm-size quintiles.

Friend and Lang (1988) attempt to explain the size effect through Standard&Poor’s Quality
Rankings for Stocks over the period 1962–1986. They find that the quality rankings of stocks were
significantly related to stock returns. Further, quality rankings are a better determinant of stock
returns than beta or other measures of risk, and the rankings explain much of the size effect.
Badrinath and Kini (1994) examine the effects of size, price-earnings, and Tobin’s q on stock
returns for the period from 1967 to 1981. They find that the size effect persists after controlling
for both P/E and q. The results indicate that the size effect is robust with respect to its relationship
with stock returns.

Garza-Gomez et al. (1998). They find as firm size decreases, cash-flow-risk increases. Further,
smaller firm size translates into positive excess returns. Thus, firm size may proxy for cash-flow
risk and this risk is not captured by beta in explaining the excess returns of small firms over large
firms.

Maroney and Protopapadakis (2002) use a new general asset pricing function that does not rely on
CAPM or linearity assumptions. They study the effects of size on stock returns for Australia,
Canada, France, and Japan, UK and US during various 1980s and 1990s time periods. A significant
negative relationship was found between market value of equity and returns. The results indicate

12
that size effects are strong in their general model even against a variety of additional potential
explanatory variables.The relationship between the predictability of returns and firm size for the
London Stock Exchange during the period 1982–1995 is examined by Mills and Jordanov (2003).
They find a size effect where small firms have significantly greater excess returns than large firms.
Further, they find greater predictability for large firms suggesting a risk-related size effect that is
not explained by beta. Elfakhani andWei (2003) study the effects of firm size on returns of
Canadian stocks during the 1975–1994 period. They find a size effect (higher returns for small
stocks), but only for high share-price stocks.

The German Market (DAX) was examined by Ising et al. (2006) for the 1990–2003 time period.
They find a differential reaction to large price changes between small and large German stocks.
Small stocks are shown to have an overreaction to large price increases and an under reaction to
large price decreases. Differential abnormal return reactions between large and small firms suggest
the existence of risk factors not captured through the market model.

Relationship between Size and Share Price

The relationship between firm-level characteristics and stock returns extensively investigated in
developed, developing and group of countries. The findings of the literature suggest that there is a
significant linkage between firm specific factors and stock returns in the countries examined the
significant relationship between the beta, ratio of book value to market value and the stock returns.
Results of the relation between beta and return in three portfolios showed that a high beta portfolio
has a higher efficiency compared to low-beta portfolios.

We compare the stock returns of small and large firms during both bull and bear markets. Prior
research in US stock markets suggests that the relationship between size and returns may be
partially dependent on the general direction of the market (Kim and Burnie 2002; Guo 2004).The
results of the study indicate that a size effect does exist for the Chinese stock markets over the 6-
year period from 1998 to 2003. That is, we find small firms have significantly greater excess
returns than large firms. This result is consistent based on the total market value, and float market
value of the firms. Closer examination of the data finds that small firms have a stronger reaction
to the direction of the market than large firms. Small firms had significantly greater positive excess
returns during the bull market period. However, small firms had significantly greater negative

13
returns (using total market value), or no significant difference in returns (using float market value)
during the bear market period. These results provide evidence of greater volatility in the returns of
small-firm Chinese stocks as compared to large-firm stock returns.

Samarakoon (1998) test the relation between stock returns and fundamental variables, this study
employed two methodologies. The first is informal tests which examine averages returns and
averages of fundamental variables for portfolios formed on the basis of size alone, beta alone, and
size and beta. The second is a formal asset pricing test which uses the Fama-MacBeth (1973) cross-
sectional regression procedure. In the formal tests, returns are regressed on of β, size, book-to-
market equity, leverage, and earnings-price ratio, both individually and jointly, in every month in
the cross-section. The results show that, inconsistent with the central prediction of the Capital
Asset Pricing Model, the relation between average returns and beta is strongly negative. Firm size
and BE/ME are not related to average returns in any significant manner.

The firm size and share price have separate effects on return. In general when average across all
month of the year, the relationship between portfolio return and firm size (share price) is
significantly negative (positive).Extending the regression model to accommodate seasonality
yields some interesting results the relationship between firm size and excess stock returns in the
stock markets.

14
METHODOLOGY

Conceptual Framework

Model-01

S.Pit = β0 + β1 DPOit + β2 ROEit + β3 ROAit + β4 SIZEit + β5 L.Yit + β6 EPSit + β7 P.Eit

+ξit

Where independent variables are,

Dividend per share (DPO) which was dividend paid to shareholders and was calculated by dividing
the total Dividends with number of outstanding share;

Return on equity (ROE) calculated by dividing profit after tax with shareholders’ equity was used
as control variable;

Return on asset (ROA) was calculated by the dividing profit after tax with total asset;

Size given by natural logarithm of assets (ln total assets);

Liquidity (L.Y) was calculated by current assets divided current liability;

Earnings per share (EPS) calculated as subtracting preferred dividends from net income and then
dividing this figure with the number of outstanding shares;

Price earnings ratio (P.E) calculated by dividing share price by earnings per share.

Where dependent variable is,

S.Pit = Share Price (which is closing monthly share prices of each company).

15
Hypotheses

1. DPS (Independent Variable) - Does DPS have a relation with share price (SP)?

 Ho- DPS has no significant relation with SP.

 HA- DPS has significant relation with SP.

2. ROA (Independent Variable) - Does ROA have a relation with share price (SP)?

 Ho- ROA has no significant relation with SP.

 HA- ROA has significant relation with SP.

3. Size (Independent Variable) - Does Size have a relation with share price (SP)?

 Ho- Size has no significant relation with SP.

 HA- Size has significant relation with SP.

4. EPS (Independent Variable) - Does EPS have a relation with share price (SP)?

 Ho- EPS has no significant relation with SP.

 HA- EPS has significant relation with SP.

5. P/E ratio (Independent Variable) - Does P/E ratio have a relation with share price (SP)?

 Ho- P/E ratio has no significant relation with SP.

 HA- P/E ratio significant relation with SP.

16
Sampling
Sample Size

We make the sampling from Electricity Company depending on criteria based of five years data
ranging from 2013 to 2017.

Sampling Units

Our sampling units are,

1. Power Grid Company of Bangladesh Limited (POWERGRID)

2. Dhaka Electric Supply Company Limited (DESCO)

3. Shahjibazar Power Co. Ltd. (SPCL)

4. Doreen Power Generations and Systems Limited (DOREENPWR)

5. Summit Power Limited (SUMITPOWER)

Sampling Method

We chose our sample randomly from Dhaka Stock Exchange & Lankabd.

17
Data Collection Method
Ordinary least squares linear regression is the most widely used type of regression for the
predicting value of one dependent variable from the value of one independent variable. The study
is explorative study and the information presented is based on secondary data collected from the
Dhaka Stock Exchange & Lankabd. We have the E-views software to analyze the data 25 collected.
The information on selected Company in Bangladesh was collected for the period 2013 to 2017.
This study shows the extent of relationship that exists between the dependent variable (S.Pit) and
the independent variables (DPO, ROA, SIZE, EPS, P.Eit). After the computation of values from
the financial statements of the respective years, it pave way to have a good cross sectional and
longitudinal data which aided the multiple regression.

Data Analysis
The company’s specific variables being examined in this study are derived from both income
statements and balance sheets of 5 company’s which are POWERGRID, DESCO, SPCL,
DOREENPWR and SUMITPOWER. The data set cover 5 year period from 2012 to 2016. Data
collect from their website.

The study used panel data regression techniques to analyze the determinants of profitability of 5
Electricity Company in Bangladesh. Panel data are commonly used because of the following
reason.

To study the determinants of success of Electricity Company in Bangladesh, this study choose the
following regression equation,

Model-01

S.Pit = β0 + β1 DPOit + β2 ROEit + β3 ROAit + β4 SIZEit + β5 L.Yit + β6 EPSit + β7 P.Eit

+ξit

Where dependent variable S.Pit (Determine of share price), independent variables DIV (Dividend),
ROA (Return on assets), SIZE (Total Asset), EPS (Earning per Share), P/E Ratio (price-
earnings ratio).

18
DESCRIPTIVE STATISTICS
Common Sample
Descriptive statistics are brief descriptive coefficients that summarize a given data set, which can
be either a representation of the entire population or a sample of it. Descriptive statistics are broken
down into measures of central tendency and measures of variability, or spread. Measures of central
tendency include the mean, median and mode, while measures of variability include the standard
deviation or variance, the minimum and maximum variables, and the kurtosis and skewness.

Descriptive statistics, in short, help describe and understand the features of a specific data set, by
giving short summaries about the sample and measures of the data. The most recognized types of
descriptive statistics are the mean, median and mode, which are used at almost all levels of math
and statistics. However, there are less-common types of descriptive statistics that are still very
important. .The descriptive statistics of the data is:

SP ROA SIZE DPS EPS PE

Mean 39.95600 0.076544 23.93560 0.664400 6.233200 -23.25360

Median 34.16000 0.040400 24.04000 0.250000 3.690000 7.860000

Maximum 89.79000 0.646900 25.79000 2.700000 73.18000 85.86000

Minimum 23.11000 -0.025000 21.70000 0.000000 -0.060000 -1060.170

Std. Dev. 17.62244 0.128938 1.108073 0.771768 14.11549 217.2995

Skewness 1.557813 3.618256 0.023334 1.006675 4.515961 -4.603229

Kurtosis 4.285522 16.67571 2.238135 3.241857 21.96871 22.51099

Jarque-Bera 11.83301 249.3669 0.606892 4.283413 459.7787 484.8309

Probability 0.002695 0.000000 0.738270 0.117454 0.000000 0.000000

Sum 998.9000 1.913600 598.3900 16.61000 155.8300 -581.3400

Sum Sq. Dev. 7453.206 0.399001 29.46782 14.29502 4781.931 1133258.

Observations 25 25 25 25 25 25

Table of Figure 01

19
From the above table we see that for SP the mean for given sample is 39.95600 and median is
34.16000. For our given sample and for the industry the maximum value of SP is on and average
89.79000 and minimum value is 23.11000. The standard deviation for the given sample is
17.62244.

From the above table we see that for ROA the mean for given sample is 0.076544 and median is
0.040400. For our given sample and for the industry the maximum value of ROA is on and average
0.646900 and minimum value is (0.025000). The standard deviation for the given sample is
0.128938.

From the above table we see that for SIZE the mean for given sample is 23.93560 and median is
24.04000. For our given sample and for the industry the maximum value of SIZE is on and average
25.79000 and minimum value is 21.70000. The standard deviation for the given sample is
1.108073.

From the above table we see that for DPS the mean for given sample is 0.664400 and median is
0.250000. For our given sample and for the industry the maximum value of DPS is on and average
2.700000and minimum value is 0.000000. The standard deviation for the given sample is
0.771768.

From the above table we see that for EPS the mean for given sample is 6.233200 and median is
3.690000. For our given sample and for the industry the maximum value of EPS is on and average
73.18000 and minimum value is -0.060000. The standard deviation for the given sample is
14.11549.

From the above table we see that for PE the mean for given sample is -23.25360 and median is
7.860000. For our given sample and for the industry the maximum value of PE is on and average
85.86000 and minimum value is -1060.170. The standard deviation for the given sample is
217.2995.

20
Correlations

SP ROA SIZE DPS EPS PE

SP 1 -0.286580 0.719685 0.411008 -0.087747 -0.239554

ROA -0.286580 1 -0.090381 -0.123864 0.944583 0.121911

SIZE 0.719685 -0.090381 1 0.309824 0.005996 -0.250497

DPS 0.411008 -0.123864 0.309824 1 0.005724 -0.229663

EPS -0.087747 0.944583 0.005996 0.005724 1 0.062793

PE -0.239554 0.121911 -0.250497 -0.229663 0.062793 1

Table of Figure 02

Correlation is used to measure the direction of the linear relationship between two variables as
well as to measure the strength of association between variables (Tabachnick, Fidell 2007). The
positive correlation indicates that when one variable increase another also increases while the
negative correlation show inverse relationship (Pallant 2007). In our research we have been able
to establishing correlation between DV & IV.

.00-.19 “very weak”

.20-.39 “weak”
.40-.59 “moderate”
.60-.79 “strong”
.80-0.99 “very strong”
1.00 “perfect”

21
The correlation between two independent variables is equal to 1 or -1. Perfectly positive co-relation
is +1 and perfectly negative co-relation is -1. The less the co-the relation the better as it reduces
risk more.

From the above table we see that for SP and ROA there is a very week negative correlation -
0.286580, this relation can be shown as scatter plot diagram given below,

SP & ROA
1.5

0.5

0
0 1 2 3 4 5 6 7
-0.5

SP ROA Linear (ROA)

Scatter Plot 01

From the above table we see that for SP and SIZE there is a strong positive correlation 0.719685,
this relation can be shown as scatter plot diagram given below,

SP & SIZE
1.2
1
0.8
0.6
0.4
0.2
0
-0.2 0 1 2 3 4 5 6 7
-0.4

SP SIZE Linear (SIZE)

22
 Scatter Plot 02

From the above table we see that for SP and DPS there is a strong positive correlation 0.411008,
this relation can be shown as scatter plot diagram given below,

SP & DPS
1.2
1
0.8
0.6
0.4
0.2
0
-0.2 0 1 2 3 4 5 6 7

-0.4

SP DPS Linear (DPS)

Scatter Plot 03

From the above table we see that for SP and EPS there is a strong positive correlation -0.087747,
this relation can be shown as scatter plot diagram given below,

SP & EPS
1.2
1
0.8
0.6
0.4
0.2
0
0 1 2 3 4 5 6 7
-0.2
-0.4

SP EPS Linear (EPS)

Scatter Plot 04

23
From the above table we see that for SP and PE there is a strong positive correlation -0.239554,
this relation can be shown as scatter plot diagram given below,

SP & PE
1.2
1
0.8
0.6
0.4
0.2
0
-0.2 0 1 2 3 4 5 6 7
-0.4
-0.6

SP PE Linear (PE)

Scatter Plot 05

Correlation is a statistical measure that indicates the extent to which two or

more variables fluctuate together. A positive correlation indicates the extent to which those
variables increase or decrease in parallel; a negative correlation indicates the extent to which one
variable increases as the other decreases.

All individual relationship IV & DV are there in Scatter plot diagram.

24
Estimate Equation & Regression Analysis

Dependent Variable: SP
Method: Panel Least Squares
Date: 03/25/18 Time: 22:02
Sample: 2013 2017
Periods included: 5
Cross-sections included: 5
Total panel (balanced) observations: 25

Variable Coefficient Std. Error t-Statistic Prob.

C -175.7454 50.82511 -3.457847 0.0026

ROA -177.8080 56.87452 -3.126321 0.0056
SIZE 9.169240 2.127743 4.309374 0.0004
DPS 1.516496 3.155415 0.480601 0.6363
EPS 1.419269 0.513948 2.761501 0.0124
PE 0.000595 0.010484 0.056781 0.9553

R-squared 0.713551 Mean dependent var 39.95600

Adjusted R-squared 0.638169 S.D. dependent var 17.62244
S.E. of regression 10.60032 Akaike info criterion 7.765208
Sum squared resid 2134.967 Schwarz criterion 8.057738
Log likelihood -91.06510 Hannan-Quinn criter. 7.846343
F-statistic 9.465864 Durbin-Watson stat 0.421384
Prob(F-statistic) 0.000117

From the above table we can develop an equation as, Share Price= -175.7454 C -177.8080
ROA + 9.169240 SIZE+1.516496 DPS+1.409269 EPS+0.000595 PE +ε.
From the table we can found out error of 56.87452 when calculate ROA, same way error
of 2.127743 in Size, 3.155415 in DPS, 0.513948 in EPS & 0.010484 in PE.

25
Let us assume that our significance level is 10% or α = 0.1

Now,

For ROA probability is 0.0056 which is less than α, so we do reject the null.
For SIZE probability is 0.0004 which is less than α, so we do reject the null.
For DPS probability is 0.6363 which is greater than α, so we do not reject the null.
For EPS probability is 0.0124 which is less than α, so we do reject the null.
For PE probability is 0.9553 which is greater than α, so we do not reject the null.

Regression analysis:

From the above table we see that r2 is 0.713551 so there is 71.36 % of the variance of
dependent variable is explained by all the independent variable vise versa.
Lastly the Prob (F-statistic) is 0.000117 which is less than α, so the model is of good fit.

26
 Conclusion

This project based on Determine of Share Price. Our sector is fuel & power, and we select the
electricity site. Electricity is the major source of power for most of the country's economic
activities. Bangladesh's total installed electricity generation capacity (including captive power)
was 15,351 MW as of January 2017.

We try to every other fundamental dilemma in this research. In Bangladesh almost 56 fuel & power
sector are here & we have been selected only 5 Electricity Company. Our 5 electricity company is
Power Grid Company of Bangladesh Limited (POWERGRID), Dhaka Electric Supply Company
Limited (DESCO), Shahjibazar Power Co. Ltd. (SPCL), Doreen Power Generations and Systems
Limited (DOREENPWR) and Summit Power Limited (SUMITPOWER). The data set cover 5 year
period from 2012 to 2016. The study is explorative study and the information presented is based
on secondary data collected from the Dhaka Stock Exchange & Lankabd. We have the E-views
software to analyze the data 25 collected. We find out the relationship between all independent
variables (ROA, SIZE, EPS, DPS, PE) and dependent variables (SP).

The correlation between two independent variables is equal to 1 or -1. Perfectly positive co-relation
is +1 and perfectly negative co-relation is -1. The less the co-the relation the better as it reduces
risk more. Research Question Hypothesis is another important fact of this research and fined the
relationship with Profitability. This research may also be great benefit to future researchers in the
field of Determine of Share Price in providing relevant literature in building up the course of study.
It may benefit other scholars and students of finance who may use it for academic purposes. May
be efficiently applied in financial decision making. IUB and other students can benefit also
educational purposes.

27
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28
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 5 companies annual data collection from, http://lankabd.com/homepage

 Basic information collection from

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determined/

29