Impact of accounting ratios on stock price: Evidence from Pakistan

Muhammad Muaz, Safia Nosheen and Muhammad Usman Islam

Abstract

Stock market investors always bear the risk. In order to counteract risk, some financial measures are carried out. In this context, the following study is
conducted to examine the impact of financial ratios on the share price of the stocks. Various studies have been carried out in different countries to find out
the variables that can affect the stock price, which may be external and internal. However, there are numerous unpredictable factors that stimulate
share price across different sectors. In this paper, we are examining the effect of returns on assets, earning pershare, and book value pershare on stock prices
to find the change in preferences of investors before and after the global recession crisis of 2008. For this purpose, a sample of 100 listed companies
on the Pakistan Stock Exchange is selected. The sample entails two periods ranging from 2004-2007 and 2011-2014. In order to determine the underlying
factors of share price, panel data regression is performed. The findings depict that the major determinants of share price for companies listed on the Pakistani
Stock Exchange are earning per share, return on assets and book value per share. The book value per share and earning per share are found to be the most
influencing factors before the crisis of 2008, but after the incident, the prediction attributes of the variables changed. After the year 2008, returns on 
asset and book value per share became the key variables to affect the share price.
Keywords: Financial Ratios, Share Price, Pakistan Stock Exchange, Financial Crisis, Panel Regression