The Impact of Accounting Information on Share Prices: Evidence from Colombo Stock Exchange

Abstract

There are mixed results between Accounting information and Share Price in developed as well as developing countries. However, the relationship between those variable is not clear in the contemporary scenario in Sri Lankan stock market. Therefore, the study aims (i) to identify the relationship between Accounting information [Earnings per Share (EPS), Dividend per Share (DPS) and Book Value per Share (BVPS)] and the Share Price and (ii) to examine combine impact of accounting information on Share Price of listed companies in Colombo Stock Exchange, Sri Lanka. Out of 242 listed companies, which have five years annual reports, 160 listed companies are selected by using proportionate stratified random sampling according to business sectors as a sample to carry out the research. Five years annual report of each company covering 2010/2011 to 2014/2015, altogether 800 annual reports, are observed to collect the data. Descriptive, correlation, Harris-Tzavalis unit root test, pooled ordinary least square (POLS), panel data regression (fixed effects model) are used to analyse the collected data. The result of the study shows that EPS, DPS and BVPS are positively correlated with share price of the companies in moderate level. The findings of simple separate regressions as well as fixed effects panel data regression analysis show that the individual independent variables have a positive relationship with share price. POLS regression shows DPS and BVPS are positively related with the stock price whereas EPS is negatively related with the share price. However, fixed effects model shows that EPS, DPS and BVPS are positively related with the share pricewhile EPS is not significant at 5% level. Further, variation in share price could be explained by encompassed all independent variables in both models POLS and fixed effects 47.6% and 36.5%, respectively. It is concluded that Accounting information influences share prices of listed companies in Sri Lanka.