Academic journal article Journal of Applied Management Accounting Research

Predictability of Share Prices through Corporate Annual Reporting: A Focus on the Dhaka Stock Exchange

Academic journal article Journal of Applied Management Accounting Research

Predictability of Share Prices through Corporate Annual Reporting: A Focus on the Dhaka Stock Exchange

Article excerpt


This paper investigates the relationship between corporate performance indices found in corporate annual reports and stock price fluctuations in the Dhaka Stock Exchange (DSE).

The study analyses disclosures regarding Earnings Per Share, Net Asset Value per Share, Price Earnings ratio, Net Profit After Tax, Declaration of Dividends, and Dividend Yield Ratio made by companies in their corporate annual reports and investigates the relationship of these indices to the stock price fluctuation of those companies.

This research found that Dividend Yield Ratio (1% sig.) and Earnings Per Share (5% sig.) are positively related with share price. This paper concludes that share prices in the DSE rarely have any relationship with disclosures of the above corporate performance indices (r2 = .184) and as such these indices should not be the sole criteria on which to base stock investment decisions.


Stock Price Fluctuation

Corporate Annual Reports

Dividend Yield Ratio

Earnings Per Share

Dhaka Stock Exchange


This study questions the recent arguments made by stock market specialists suggesting fundamental analyses of performance indices before investing in any stock and also investigates whether this holds under the theory of Efficient Market Hypothesis (EMH). We extend the study by Saha and Bhuiyan (2013), which tested the relation between P/E Ratio and stock price fluctuation, by testing the effect of additional performance indices along with the P/E Ratio on stock price fluctuation.

Since the early 1970s, numerous studies on the stock market have been conducted, with most focusing on stock returns because it is important to both investors and business organizations to know what influences their investment returns and company stock value. Factors considered by researchers are Dividend Price Ratio (Campbell and Shiller, 1988a, 1998; Lo and McKindley, 1988; Poterba and Summer, 1988); Price Earnings (P/E) Ratio (Basu, 1983; Lamont, 1998); Dividend yields Ratio (Fama and French, 1988; Hodric, 1992; Kothari and Shanken, 1992; Goetzmann and Jorion, 1993); and Earnings Ratio (Ma and Kao 1990; Ajayi and Mougoue, 1996; Nieh and Lee, 2001). The identification of influencing factors on stock return is not only an important issue for academicians, but also has a critical role for fund managers and individual investors who aim to maximize the return on their investment. This has been a research question for decades and little attention has been paid to emerging markets like Dhaka Stock Exchange (DSE).

This is the first known research of its kind investigating the predictability of stock prices in DSE based on such comprehensive corporate annual report (CAR) indices. Stakeholders of DSE, specifically the investors, regulators and officials of DSE and BSEC (Bangladesh Securities and Exchange Commission) may find interest in the study findings because emerging markets are differentiated from developed markets with respect to their heterogeneous nature and inherent dynamics. These are the markets characterized by high volatility and high average returns. It has been shown that they are not integrated with the developed markets of the world as evidenced by a very low correlation with the rest of the world and among them (Bekaert et ak, 1998). Thus, the present study on DSE may contribute an interesting insight to the existing knowledge.

Review of Literature and Hypothesis Development

Prior literature in this area studies similar relations in terms of developed and other developing countries of the world. Gordon (1959) was one of the first who developed a model to estimate stock value based on its dividend stream. Since then, a few other models and theories have been developed to explain the effect of dividend on stock value (Litzenberger and Ramaswamy, 1982; Elton et ak, 1990). However, residual dividend theory argues that managers pay dividends only if they do not have any profitable investment projects. …

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