Accounting Information and Share Price Movements in SENSEX – A Special Reference to Automobile Industry

R. Iyappan¹, Dr. L. Ganesamoorthy²

¹Doctoral Research, Scholar, Department of Commerce Annamalai, University. Annamalai Nagar

²Assistant Professor in Commerce, Annamalai University, Annamalai Nagar, Tamilnadu.

*Corresponding Author E-mail: lganesh_cdm@gmail.com

ABSTRACT:

The study has been carried out to analyse the impact of accounting variables on share price behaviour of SENSEX with reference to automobile industry. Four automobile companies namely Hero Motocorp Ltd. Maruti Suzuki India Ltd. Mahindra and Mahindra Ltd. and Tata Motors Ltd. Included in SENSEX are selected. The study has been made for twelve years from 2004-05 to 2015-16. Nine accounting variables are selected for the study to study impact on share price return on selected companies. The researcher applied ratio analysis as financial tool and descriptive statistics, correlation and regression analysis as statistical tools. The results of ANOVA revealed that the model considered for the study is statistically fit and the entire nine variables explained the share price behaviour to the extent of 42.8 percent. The study found that the variables, Dividend Growth Rate, Operating Profit Ratio, Earning per Share and Book Value per Share had significant positive impact on share price behaviour of selected automobile companies in India. The variable, dividend per share had significant negative impact on share price behaviour of the sample companies. Other variables namely Size of the Firm, Assets Growth Rate and Price Earnings Ratio did not have significant impact on share price behaviour of selected automobile companies in India.

KEY WORDS: Return, Sensex, accounting, operating profit, automobile.

INTRODUCTION:

Stock market is one of the attractive investment avenues in India, since it gives high rate of return on the investment than other types of investment avenues. Indian stock market is considered as one of the fastest developing markets in the world. These features attract not only the domestic investors and also foreign investors in to the market. Stock market contributes a considerable portion to Gross Domestic Products (GDP) of India.

Stock market of the country brings more foreign currency through investments made by foreign institutional investors. Investors and traders are making profit on price fluctuations in the market. So fluctuation is the primary feature of stock market. The movement of stock market is known by its index. Index is the average fluctuation of selected stocks in the market. In India, Bombay stock exchange (BSE) and national stock exchange (NSE) are national level stock exchanges and 99.5 per cent of total transactions of stock are carried out in these two exchanges. Among them BSE is the oldest stock exchange in India. SENSEX is the primary index of the exchange. Top 30 companies in terms of turnover are included in the index. Generally share prices fluctuate based on various factors such as macro economic factors, industry related factors and specific company related factors and so on. Among them specific company related factors cause the fluctuation of share prices of the particular company. Accounting variable are the most considered factors among company related factors. Automobile industry is one of the key industries in India. Out of 30 constituents of SENSEX, 5 are from automobile industry namely Bajaj auto Ltd , Tata Motors Ltd , Hero Moto Corp Ltd , Mahindra and Mahindra Ltd and Maruti Suzuki India Ltd. The study has been undertaken to analyse the impact of accounting variables on the share price movements of SENSEX with reference to auto mobile industry.

REVIEW OF LITERATURE:

Junlie Wang, Gang Fu and Chao Luo (2013) found in their study that accounting information had effects on the movements of Chine stock market. The effects of profitability, earnings per share and return on equity and shareholder fund were most significant. In case of accounts receivable turnover ratio, inventory turnover ratio and liquidity ratios had low impact on the movement of stock prices. Udayan S Kachchhy, Bhavik Swadia and Shailja Tiwari (2014) evidenced that operating margin and inventory turnover ratio had significant impact on share price movement in India. But remaining indicators from financial statement had low significance on the share price. Hamid Reza Vakilitari and Malektaj M. Oskollei (2014) evidenced that the explanatory power of earnings and book value in the formulation of prices increased over the time. The study also found multicollinearity between earnings and book value variables in Iron. Micbalis Glezakos, John Mylonakis and Charalampos Katouros (2012) found that impact of earnings is diminishing compared to the book value on share price movements in Greece. Multicollinearity was traced between the earnings and book value variable. Menike and U.S Prababath (2014) found that there was some relationship between accounting variable and the stock price movements in Srilanka. The variables earnings per share, dividend per share, book value per shares had positive and significant relationships with stock price in Colombo Stock Exchange. It also found that dividend per share was most sensitive variable with share prices.

Khurram Shehzed and Aisha Ismail (2014) found that earnings per share and book value per share had strong and significance relationship with share price. Book value per share had negative relationship and earnings per share had positive relationship with share price in Pakistan. Abdel Razaq, Mohammad Odeh Almeri and Mohammad Musa Shanikat (2014) found weak correlation between the variable of dividend payout and volatility in the stock price in Jordan. The result indicated lack of significant correlation between the other accounting variables and volatility in the stock price. Sujeewa Kodithuwkku (2016) identified that there was a relationship between the selected accounting factors and the movement of stock prices in Srilanka. Dividend per share, earnings per share and net value per share had positive relationship with share price of sample companies. The study concluded that selected accounting factors influenced the share price of manufacturing sector in Srilanka. Okuns Mokhoje Omokhudu and Peter Okoeguale Ibadin (2015) found that earning, cash flow and dividends affected the movements of share prices significantly, but the variable book value did not affect the movement of share price significantly in Nigeria.

STATEMENTS OF THE PROBLEM:

Market price of a share is fluctuating often. This price fluctuation is caused by many factors by both economic and non-economic factors. Among fundamental analysis, company analysis is getting importance because other factors such as economic and industry related factor affect share price of all companies or a particular industry. But specific company related factors affect share price of the particular company. There are several internal factors which affect shares price of a company, among them accounting factors are important, since investor invest in share of a company only when a company is financially strong. Hence it is important to study the impact of accounting factors on share price movements. So the researchers have selected nine accounting factors (discussed subsequently) and their influence on share price behaviour on SENSEX with reference to automobile industry.

OBJECTIVES:

The study has been undertaken with the following objectives.

1. To study the relationship between selected accounting factors and share price behaviour of selected automobile companies in India and

2. To analyse the impact of the selected accounting factors on share price behaviour of selected automobile companies in India.

METHODOLOGY:

The study has been carried out to analyse the impact of accounting variables on share price behaviour of SENSEX with reference to automobile industry. For this purpose automobile companies included in SENSEX were planned to take. Five automobile companies namely Bajaj Auto Ltd. Hero Motocorp Ltd. Maruti Suzuki India Ltd. Mahindra and Mahindra Ltd. and Tata Motors Ltd. are included in SENSEX, but in case of Bajaj Auto Ltd, the share prices are available from 2008-09, since the company was demerged on 21^st August 2008 (www.bajajauto.com/demerged.asp). The study has been made for twelve years from 2004-05 to 2015-16. So, due to non- availability of data exclusion of the company other four companies are considered for analysis. It was observed from earlier studies, that the accounting variables Dividend Per Share (DPS), Dividend Growth Rate (DGR), Size of the Firm (FS), Assets Growth Rate (AGR), Net Profit Ratio (NPR), Operating Profit Ratio (OPR), Earnings Per Share (EPS), Price Earnings Ratio (PER) and Book Value Per Share (BVPS) were found to have influence on share prices. So the researcher has taken these nine accounting variables as influencing factors of share price behaviour of selected companies. The researcher applied ratio analysis as financial tool and descriptive statistics, correlation and regression analysis as statistical tools.

Table 1: Descriptive Statistics

Factors	No.	Minimum	Maximum	Mean	SD
Return on Share Price	48	-77.9	330.23	21.77	290
Dividend Per Share	48	-100	449.99	18.89	405
Dividend Growth Rate	48	-100	449.99	25.79	304
Size of the Firm	48	-2.49	3.4	1.32	96
Assets Growth Rate	48	-7.81	46.87	17.05	72
Net Profit Ratio	48	-1453.5	86.09	-29.58	706
Operating Profit Ratio	48	-125.44	609.61	17.86	544
Earnings per Share	48	-1516.6	123.73	-21.83	896
Price Earnings Ratio	48	-1600.5	345.07	-18.92	1273
Book Value per Share	48	-81.55	45.12	13.21	158

Source: Computed from Secondary Data

It could be known from table 1 that a total of 48 firm years were observed for the study for each selected variable. It describes minimum and maximum values of the selected accounting variables. The results also showed mean and standard deviation of the selected variables. The results of mean and standard deviation showed that there was high deviation in the variables from its mean value.

The researchers have also analysed the relationship between share price behaviour of the selected automobile companies and accounting variables. For this purpose correlation analysis has been applied and results are presented in table 2.

Table 2: Correlation between Accounting Information and Share Price Movements

Accounting variables	Correlation	P- value
Dividend per Share	0.480	0.001
Dividend Growth Rate	0.459	0.001
Size of the Firm	0.222	0.130
Assets Growth Rate	0.060	0.683
Net Profit Ratio	0.044	0.764
Operating Profit Ratio	0.273	0.061
Earnings per Share	0.077	0.603
Price Earnings Ratio	0.196	0.182
Book Value per Share	0.145	0.325

Source: Computed from Secondary Data

It could be observed from table 2 that all the selected accounting variables had positive relationship with share price behaviour of sample companies during the study period. Among them dividend per share and dividend growth rate had moderate level of relationship with the correlation co efficient of 0.480 and 0.459 respectively and they are statistically significant. Operating profit had positive relationship with share price movement, its correlation co-efficient was 0.273, where as the result of net profit was low (0.044), but both of the results are not statistically significant. Size of the firm, price earnings ratio and book value per share were also positively correlated with share price movement, The calculated values of correlation coefficients were 0.222, 0.196 and 0.145 respectively, but they are also not statistically significant. Even though Earnings per Share and assets growth rate had positive relationship with share price behaviour of selected automobile companies, with the correlation co- efficient of 0.077 and 0.060 respectively, but they are not statistically significant. It was observed that among the selected accounting variables, Dividend per Share and Dividend Growth Rate had a significant positive relationship with share price movement. Other variables also had positive relationship with share price behaviour of the selected companies, but the correlation co-efficient is are low and they are not statistically significant.

In the view of analysing the impact of selected accounting variables on share price behaviour of the sample companies, linear regression analysis has been employed and the results are presented subsequently. Table 3 presents the results of ANOVA under regression analysis.

Table 3: ANOVA

Model	Sum of squares	DF	Mean Squares	F	Sig
Regression	95039.6	9	105559.96	4.911	0
Residual	81714.6	38	2150.38
Total	176754	47
Adjusted R²	0.428

Source: Computed from Secondary Data

Table 3 shows that the calculated value of F- statistics of ANOVA is 4.911, its p- value is zero, it indicates that the calculated value of F-statistics is statistically significant. Therefore the regression model framed for the study in order to analyse the impact of selected accounting variables on share price movements is fit for the study. The calculated value of adjusted R² of the regression model is 0.428, it shows that all the selected independent variables explained share price behaviour of the sample companies to the extent of 42.8 percent.

Table 4 reports the results of regression analysis of the impact of selected nine accounting variable on the share price behaviour of automobile companies with reference to SENSEX for the period of twelve years from 2003-04 to 2015-16.

Table 4: Regression Results of Accounting Information and Share Price Movements

	Unstandardized Co-efficients		Standardized Co-efficients	T	Sig.
	B	Std. Error	Beta	T	Sig.
Constant	-14.768	16.05		-0.92	0.363
Dividend per Share	-3.377	1.217	-4.264	-2.776	0.008
Dividend Growth Rate	3.766	1.209	4.694	3.115	0.003
Size of the Firm	-25.976	13.879	-538	-1.872	0.069
Assets Growth Rate	-1.064	0.626	-214	-1.7	0.096
Net Profit Ratio	-3.347	1.238	-11.601	-2.703	0.01
Operating Profit Ratio	0.182	0.076	0.292	2.388	0.022
Earnings per Share	3.128	1.185	11.448	2.641	0.012
Price Earnings Ratio	0.047	0.033	0.185	1.435	0.169
Book Value per Share	1.702	0.596	0.581	2.856	0.007

Source: Computed from Secondary Data

Table 4 shows that among nine accounting variables, dividend per share, size of firm, net profit ratio and assets growth rate had negative impact on share price behaviour of selected automobile companies, other five variables namely Earnings Per Share, Book Value Per Share, Operating Profit Ratio, Dividend Growth Rate and Price Earnings Ratio had positive impact on price behaviour of the sample companies. The regression co- efficient of dividend per share on share price behaviour of sample companies was -3.3777, its p- value was 0.008, it is significant at 1% level. It shows that dividend per share had significant negative impact on share price behaviour. Dividend growth rate had significant positive impact on share price behaviour as shown by the results of regression co- efficient and p- value at 3.766 and 0.003 respectively. It indicates that investors approached share prices positively based on dividend growth rate. Net profit ratio affected share price behaviour of sample companies negatively as shown by regression co- efficient at -3.347, its p- value is 0.010, and it is significant at 1% level. Hence it had significant negative impact on share price behaviour in automobile industry.

The calculated value of regression co efficient of operating profit ratio on share price behaviour is 0.182, its p-value is 0.022, it is significant at 5% level. Hence operating profit had significant positive impact on share price behaviour. Earnings per share had positive and significant impact on share price behaviour of sample companies as shown by the results of regression co efficient and p- value at 3.128 and 0.012 respectively, Book Value per Share is the economic value per equity share of a company. Regression co efficient of the variable is positive at 1.702; it is significant at 1% level. Hence, book value per share had positive and significant impact on share price behaviour of sample companies. Regression co efficient of size of the firm was high, but it is not statistically significant either at 1% or 5% level, so size of the firm did not have significant impact on share price behaviour of select automobile companies in India. The calculated value of regression coefficient of assets growth rate and price earnings ratio are not significant as per the result of p- value, so these variable also did not have significant impact on share price behaviour of selected automobile companies in India.

CONCLUSION:

Automobile industry is one of the progressing industries in India and they have scope for future development. Hence many investors seek to invest in shares of automobile companies. Five automobile companies have been constituents of SENSEX. As an important industry, it has been considered for the present study to analyse price behaviour based on nine accounting variables for the period of twelve years spanning from 2003-04 to 2015-16. ANOVA Results of the study is revealed that the model considered for the study is statistically fit and the entire nine variables explained the share price behaviour to the extent of 42.8 percent. The study found that the variables, Dividend Growth Rate, Operating Profit Ratio, Earning Per Share and Book Value per Share had significant positive impact on share price behaviour of selected automobile companies in India. The variable, dividend per share had significant negative impact on share price behaviour of the sample companies. Other variables namely Size of the Firm, Assets Growth Rate and Price Earnings Ratio did not have significant impact on share price behaviour of selected automobile companies in India.

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Received on 20.02.2017 Modified on 11.08.2017

Asian J. Management; 2017; 8(4):957-961.

DOI: 10.5958/2321-5763.2017.00148.2