Factors Affecting Share Prices of Finance Companies in Sri Lanka

Abstract

The price of a share is influenced by a variety of internal and external factors. Internal factors are those dependent on the company, such as return on equity, and earnings per share. The external influences include raw material pricing, economic trends, inflation, investor confidence, interest rate, exchange rate, and other factors that are beyond the firm's control. Both kind of factors may influence the investor’s future expectations and risk-taking ability, and as a result that they take their investment decisions. This study aimed to examine the factors affecting share prices in finance companies in Sri Lanka for the period of five years, from 2017 to 2022. For that purpose, researchers selected the independent variable as the share price, while the dependent variables are earnings per share (EPS), return on equity (ROE), interest rate, inflation, and exchange rate. The researchers collected data from the CSE data library, Company annual reports, and Central Bank Reports. The STATA was used to analyze the data in this study. Descriptive Statistics, Correlation Analysis, Regression Analysis were performed as analytical tools. The findings highlighted that EPS and inflation positively impact raw material pricing, while ROE, interest rate, and exchange rate showed a negative impact. But only EPS shows a significant impact on the raw material pricing. This study suggested to take at least 10 years duration for data collection and consider more internal and external factors.