An Empirical Study on the Relationship between Earnings and Share Prices of Automobile Companies Listed in NSE

Abstract

Investors will invest in the stocks to get the better returns. The returns which the investors prefer will not always be the dividends but increase in the share price. There are various factors which determine the movement of the share price in the market. Based on this background the research is done in order to understand whether the share price is having any relationship with that of earnings of the firm. The empirical research is conducted on the selected automobile companies listed in NSE. A sample of 5 companies in automobile sector listed continuously in the NSE between the years 2016 to 2020 are considered for a study. Multiple linear regression analysis was used to establish the relationship. Share price was the dependent variable while earnings per share (EPS), Dividend per share (DPS), price earnings ratio (PER) and price to book value ratio (PBV) were used as independent variables.
The findings showed that there was no significant relationship between earnings and share prices of the automobile firms quoted at the National Stock Exchange (NSE). It was also found that there were other variables significantly correlated with share price. The study included EPS, DPS, PER & PBR which were used as control variables in the study. The variable was found to have no significant relationship with share price. The results revealed that the earnings and share prices are not effectively related. The study also revealed that EPS, DPS & PER are not the only predictors of share price.