Impact of firms’ earnings on stock prices: special reference to the S&P Sri Lanka 20 companies

Abstract

Stock price plays a vital role in the financial markets in the business world. Investors are keen on stock price movements when they make investment decisions. Several studies in the international and the Sri Lankan context focus on identifying the firms’ earnings impact on the stock price. This study investigates the impact of the firm’s earnings on the stock price of the S&P SL20 companies listed in Colombo Stock Exchange (CSE) for the periods from 2014/15 to 2019/20. The firms’ earnings are measured using Earnings Per Share (EPS), Dividend Per Share (DPS), and Dividend Payout Ratio (DPR). The required data were collected from the audited annual reports of respective companies. The study used multiple linear regression to analyze the impact of firms' earnings on the stock price. Results reveal that the impact of EPS and DPS on Stock Price is statistically significant. However, the Dividend Payout Ratio on Stock Price is statistically insignificant. Finally, the study concludes that firms’ earnings impact the stock price in Sri Lankan S&P SL20 companies.