INTRODUCTION:

The proof rumored in various studies tested in developed markets like USA and UK and their stock market reaction based on accounting information is basically according to the data content hypothesis and efficient market hypothesis (EMH).It is a troublesome challenge to check the market reactions to accounting information in rising markets as it is typically are characterized by a comparatively sizable amount of uninformed and unsophisticated investors, weak legal, low liquidity levels, regulative and organizational framework and operational bottlenecks (Osei, 2002)¹.

Additionally, it's conjointly difficult because of excessive value volatility that could be a consequence of the comparatively unstable political and macro economic conditions. Many studies have been testing the market reaction to the accounting information in rising stock markets. Although there isvaried studies to check the stock price reaction to information within the developed countries markets very few studies in developing markets, particularly within the Indian pharmaceutical Companies.

Dissa-Bandara, et al. (2002)² conducted a to test the market reaction data substance in profit declaration and found that regardless of differing reaction time, advertise responded totally to the information however the reaction required some serious energy. In addition Alternative inquiry done by Ramesh, et al. (2011)³, Gunasekara (2004)⁴ on market responses on reward issue and results uncover that the market responds each contrarily and totally to the issue of bonus. The primary objective of all financial statements is to provide financial information of an organizational performance to the internal and external stakeholders to make decisions. There are more studies done on the value of the financial report information impacting the stock market. Few researchers examined the effect of accounting information onthe future financial performance while different analysts measure the effect of bookkeeping factors on share value (Abarbanell, et al. 1998 )⁵. Amongst bookkeeping data; budgetary proportions from money related articulations like benefit and misfortune record and asset report assumes a urgent part to decide the stock cost.This paper identified four financial ratios to test the impact of the share price on the on a sample of 10 Nifty Pharma Index companies listed on the National Stock Exchange (NSE) of India from 2010 to 2017.The financial ratios include the Dividend Per Share (DPS),Earnings per Share (EPS), Price to Book Value, Closing market price per share and Book Value Per Share (BVPS). Finally, based on the literature review we formulated the hypothesis to analyze the relationship between the four accounting ratios and stock price.

REVIEW OF LITERATURE:

In carrying out the research examination of the stock value response to accounting information factors writing, since 1968 and there onwards nonstop investigations have been done by various researchers taking a gander at different viewpoints identified with the subject under dialog. In considering the connection between bookkeeping proportions and stock value Bhana (1996)⁶, "in his investigation utilized income per share (EPS) to affect the market responses at the Johannesburg Stock Exchange. This examination paper gives extra supporting proof which is steady with the basic behavioral view that financial specialists blow up to here and now income developments. Be that as it may, absolutely, inside the system of effective market speculation, it is plainly confusing that a sensational fall in the cost of the offer is prescient of a resultant ascent in organization particular income.

Perera, et al.(2010)⁷,“has made the empirical research on the relevance of accounting information on the investor's decisions in commercial banks registered under the Colombo stock exchange (CSE) in Sri Lanka. The correlation coefficient study was for five years from 2006 to 2009 on accounting data market price per share (MPPS), earnings per share (EPS), Return on Equity (ROE) and Earning Yield (EY). It shows that there is a relationship between accounting variables and stock return”.

Wang, et al. (2013)⁸“studied the share value reactions to the accounting information within the Chinese Stock Exchange for the amount of 1 year in 2011. The analysis revealed the link between accounting information and therefore the stock value with a couple of accounting variables. The author used Earning per share (EPS) and Return on Equity (ROE) to clarify the stock value reactions to accounting information. The research revealed that there's a big positive relationship exists between accounting information and stock value. However the considerable degree varies; earnings per share and return on equity have the foremost vital correlation relationship”. (Prabath, 2014)⁹, has found that the stock price has positive reactions on EPS, DPS and BVPS using single and multiple regression models for Colombo stock exchange of SriLanka for the period of 2008 to 2012 using random sampling techniques.

Geetanjali Purswani, et al. (2017)¹⁰investigated the positive relationship between accounting information EPS, DPS, BVPS and price to book value of share prices of construction companies listed on Bombay Stock Exchange (BSE) of India using fixed effect and random effect model for the period of five years.

OBJECTIVES OF THE STUDY:

The main objectives of the study are to

1) To study the relationship between Earnings per Share (EPS) and the market price of the share.

2) To study the relationship between Dividends per Share (DPS) and the market price of the share.

3) To study the relationship between Book Value per Share (BVPS) and the market price of the share.

4) To study the relationship between the price to book value and the market price of the share.

HYPOTHESIS FOR THE STUDY:

The following hypothesis is developed based on the literature to achieve the above-mentioned objectives of the study.

H₀₁: There is no significant relationship of EPS and the market price of the share.

H₁₁: There is a significant relationship of EPS and the market price of the share.

H₀₂: There is no significant relationship of DPS and the market price of the share.

H₁₂: There is a significant relationship of DPS and the market price of the share.

H₀₃: There is no significant relationship of BVPS and the market price of the share.

H₁₃: There is a significant relationship of BVPS and the market price of the share.

H₀₄: There is no significant relationship of price to book value and the market price of the share.

H₁₄: There is a significant relationship of the price to book value and the market price of the share.

DATA AND METHODOLOGY:

The market price of the Share (MPS):

It is defined as the price to the market assigns to the companies stocks, is considered as the dependent variable. For this study, the closing market price of the share is taken as a proxy variable.

Independent Variables:

Earnings per share (EPS):

It is that portion of companies’ earnings allocated to each outstanding share of ordinary stock. EPS serves as an indicator of a company’s profitability.

Book Value per Share (BVPS):

It is companies’ assets minus its liabilities. It is the money given to shareholders at the time of liquidation/winding up.

Dividend per Share (DPS):

Dividend is that portion of profit which is distributed to share holders. Normallywhen companies’ makeprofits, it distributes to shareholders or reinvestson the company only. A stable dividend payout ratio signifies that the dividend policy of the company is sound.

Price-to-Book Value per Share (BVPS):

The price to book value per share (P/B) is a ratio iused to compare a stock’s price to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.

Sample and Method:

For this study, a sample of 10 companies listed throughout the study period (2011 to 2017) was selected from the Nifty Pharma Index Companies (as on 14.09.2017). The secondary data has been collected from the annual reports of the company, MoneyControl.Com, Prowess Data base of CMIE and the data based on the National Stock Exchange (NSE).

MODELS USED FOR ANALYSIS:

Fixed-Effect Model (FEM):

FEM is used in this study to take into consideration of heterogeneity of the companies. This is the most commonly used regression model for panel data.

Random Effect Model (REM):

REM is used in this study for the panel data regression to see the influence of heterogeneity in the behavior of breaking down the error term into two components. The following panel regression model is used to examine the relationship of EPS, DPS, BVPS, price to book value and share price.

MPPS_it=β₀+β₁EPS_it+β₂DPS_it+β₃BVPS_it+β₄P_B_it+μ

Where

β_0, β_1, β_2, β_3, β₄are the regression coefficients of accounting variables.

MPPS is closing market price per share

DPS is dividend per share

EPS is earning per share

P_B is price to book value per share µ is the stochastic error correctional term, and i and t represent firm and time (year) respectively.

Table1: List of Companies included in the sample.

Sl No	Company Name
1	AurobindoPharma Ltd.
2	Cadila Healthcare Ltd.
3	Cipla Ltd.
4	Divi'S Laboratories Ltd.
5	Dr. Reddy'S Laboratories Ltd.
6	Glaxosmithkline Pharmaceuticals Ltd.
7	Glenmark Pharmaceuticals Ltd.
8	Lupin Ltd.
9	Piramal Enterprises Ltd.
10	Sun Pharmaceutical Inds. Ltd.

Source: National Stock Exchange Official Website (www.nseindia.com)

RESULTS AND DISCUSSION:

At the outset, overall analysis of the findings is as follows: Firstly, we analyze the descriptive statistics and the correlation matrix. Secondly, using the fixed effect model and random effect model for the panel data, we analyze the impact of independent variables on the dependent variable.

Table 2: Descriptive Statistics of Accounting Variables and Price of the Share

Variable	Mean	Min	Max	Std D
MPPS	111	119	3814	880.11
EPS	31.95	-191.09	111.21	37.92
P/B	5.67	0.6	18.82	3.48
BVPS	241	35.77	750.65	201.02
DPS	12.6	0.4	62.5	15.34

Table 2 provides the insights on the descriptive statistics of all the variables used in the study. Market Price Per Share (MPPS) shows the highest value of standard deviation (880.1167495) and Dividend Per Share (DPS) show the lowest standard deviation (15.3452). Market Price per Share (MPPS) shows the highest mean value (1116.482143). Earnings per Share (EPS) show the minimum value of -191.09. Market Price per Share (MPPS) shows the maximum value of 3814.75. Further, Table.3 highlights correlation matrix concerning the variables that are considered in this study.

Table 3: Correlation Analysis Results

Variables	MPPS	EPS	P/B	BVPS	DPS
MPPS	1
EPS	0.552	1
P/B	0.524	0.162	1
BVPS	0.427	0.125	-0.368	1
DPS	0.723	0.222	0.417	0.368	1

Table 3: After understanding the descriptive statistics and the correlation matrix, we looked at the impact of accounting variables, i.e., DPS, EPS, BVPS and P_B on the market price per share (MPPS) on the nifty 10 pharma companies of NSE in India using fixed effect model and random effect model for the panel data. To analyze the results we have used Eviews version 9.

Table 4: Panel Data Result Analysis of Fixed-Effect Model and Random Effect Model

	Fixed-Effect Model			Random-Effect Model
Variables	Coefficient	t-Statistic	Prob	Coefficient	t-Statistic	Prob
Constant	-927.4113	-7.094311	0.0000	-673.1076	-6.783488	0.0000
DPS	17.20007	3.328865	0.0015	12.36741	3.965460	0.0002
EPS	1.639025	1.803590	0.0767	4.929109	6.338664	0.0000
BVPS	4.098142	10.61152	0.0000	2.630581	11.27679	0.0000
P_B	138.1694	10.09260	0.0000	148.0359	12.56748	0.0000
R-Squared	0.958790			0.816392
Adjusted R-Square	0.949224			0.805093
SE of Regression	198.3218			262.0370
F Statistic	100.2233			72.25359

Table.4: Analyzes the results concerning fixed effect and random effect. Further, overall the model concerning fixed effect and random effect the models have explained about 95% and 84% of the total variation in the market price per share as reflected in R square value. In the fixed effect model, all the variables are statistically significant and influence the market price per share. Further, concerning random effect model, all the variables are statistically significant and have an impact on the market price per share. Overall, the results indicate that EPS, P/B, BVPS, and DPS are highly important in determining the market price. Therefore, while evaluating the market price of different companies, one has to consider the importance of these variables and its impact.

CONCLUSION:

The study was conducted to investigate the impact of accounting variables DPS, EPS, BVPS, and P_B on the market price per share (MPPS) on the nifty ten pharmacy companies of NSE in India. This is an attempt to make a study on how the accounting variables determine the equity share valuation in the selected companies. Based on the regression analysis the results revels that DPS, EPS, BVPS and P_B found to have significant positive impact on the market price per share.

REFERENCES:

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2. Dissabandara, D. B. P. H., and Samarakoon, L. P. Dividend announcements, firm size anddividendgrowth in the Sri Lankan Stock Market. Sri Lankan Journal of Management. 2002; (7).

3. Ramesh, S., and Nimalathasan, B. Bonus issue announcement and its impact on share price of ColomboStock Exchange in Sri Lanka. 8th International conference of Business Management, University of Jaffna, Sri Lanka.2011.

4. Gunasekara, M.D.T.Share price reactions to bonus issue announcment of sri lankan stock market.University of Moratuwa, srilanka.2006.

5. Abarbanell, Jeffery S.B and Brian J. Abnormal returns to a fundamental analysis strategy. The Accounting Review.1998; 73(1).

6. Bhana, N. The share market reaction on earnings announcements—a test of the efficiency of the Johannesburg Stock Exchange. Investment Analysts Journal.1996; (42).

7. Perera, R. A. A. S., and Thrikawala, S. S. An empirical study of the relevance of accounting information on investor’s decisions.ICBI, University of Kelaniya, Sri Lanka.2010.

8. Wang, J., Fu, G, and Luo, C. Accounting information and stock price reaction of listed companies—empirical evidence from 60 listed companies in Shanghai Stock Exchange. Journal ofBusiness and Management.2013; 2(2).

9. Prabath, M. M. The impact of accounting variables on stock price: Evidence from the Colombo stock exchange, Sri Lanka. International Journal of Business and Management, 2014;(125-137).

10. Geetanjali Purswani and Anuradha P S Value Relevance of AccountingInformation: An Empirical Study on Construction Companies Listed on Bombay Stock Exchange. IUP Journal.2017; (34-42).

Received on 26.09.2017 Modified on 02.11.2017

Asian Journal of Management. 2018; 9(1): 333-336

DOI: 10.5958/2321-5763.2018.00051.3