The Effect of EPS and Dividend Payout Ratio on Stock Prices: A Study of PSX Listed Non-Financial Firms

Abstract

Earnings per share and dividend payout ratio are amongst the most prominent ratios in financial world. This research aims to find out the impact they have on the share prices. The scope of research is limited to 50 non-financial companies listed on Pakistan Stock Exchange (PSX). Panel regression model is used and the time length of the 5 years is set. The results show that 60 times out of 100 Earnings Per Share (EPS) explains the share price. Whereas dividend payout ratio has detrimental to no effect on the dependent variable. This being said the model developed through the financial data analysis is also not strong enough. One of the reasons for such results can be the inefficient ecosystem of PSX. The investors usually make decisions based on sentimental factors and not taking in account the company specific factors.