Determinants of Share Prices of listed Commercial Banks

In Bangladesh

Md. Abdul Wadud

September 17, 2017

Abstract
The capital market is the crucial place for institutions to deploy stocks and rise fund. If there are listed
public institutions, then they can deploy their shares in the market to gather more funds to enlarge the
business. This study focus to investigate the consequence of some influential factors on market stock price
such net asset value per share, interest rate, dividend per share, book to market ratio, price earnings ratio
(P/E ratio), leverage, earning per share, return on equity (roe), total number of share outstanding, book
value per share, total size of the company and total age of the company.etc. To achieve the stetted objective,
the study uses 30 Dhaka stock exchange (DSE) listed commercial bank of Bangladesh during the period
2007 to 2016. For the purpose of estimating the effects of independent variables on the share price, three
estimation models were used such as pooled ordinary least squares (OLS), the random effects, and the fixed
effects. The study used Stata version 21 software to analyze the raw data. The study also employed
descriptive statistics, correlation statistical test, Levin -Lin- Chu Unit- Root Test, normality test,
heteroscedasticity test and multicollinearity test. From the Levin -Lin- Chu Unit- Root Test we find that all
the variables were stationary at level. Also, they are significant at 1%. From the normality test we find that
the P-value of the taken variable less than 0.05. So, this model is violating by normal distributions. To check
the heteroscedasticity, we run Breusch-pagan test that result is found P-value is 0.000which is less than 5%
of level of significance. Hence, we reject the H0. From the multicollinearity test we find that the values
tolerance (TOL) less than 10 indicates high degrees of collinearity or multicollinearity among the
independent variables prove that the data is free of multicollinearity. From the Ordinary Least Squares
(OLS) test we find that that dividend per share, net asset value per share, return on equity, leverage, earnings
per share, book value per share, book to market ratio and price to earnings ratio proved to be significant in
confidence level of five percent. But we avoid this result because Heteroscedasticity and multicollinearity
are the crucial problems that might be occurring in the regression model. From the Fixed effects model we
find that dividend per share, net asset value per share, return on equity, leverage, earnings per share, book
value per share, book to market ratio, price to earnings ratio, total size of the bank and total age of the bank
proved to be significant in confidence level of five percent. From the Random effect model we find that

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that dividend per share, net asset value per share, return on equity, leverage, earnings per share, book value
per share, book to market ratio and price to earnings ratio, proved to be significant in confidence level of
five percent. From the Hausman specification test we find that P value is not significant that is chi-square
value is less than 0.05. Consequently, we accept fixed effect model as our appropriate model for estimation.

Keywords: Dhaka stock exchange (DSE), Ordinary Least Squares (OLS), Share prices,
Determinants, Interest rate, Dividend per share, Book to market ratio, Price earnings ratio (P/E
ratio) , Leverage , Earning per share, Return on equity, Total number of share outstanding, Book
value per share , Panel data.

Background of the Study

The capital market is the machine of growth for an economy, and performs a critical role in acting as an
intermediary between savers and companies seeking additional financing for business expansion. Vibrant
capital is likely to support a robust economy. While lending by commercial banks provides valuable initial
support for corporate growth, a developed stock-market is an important pre-requisite for moving into a
more mature growth phase with more sophisticated conglomerates. The supply and demand forces are the
major cause of fluctuation in stock prices. But there is no perfect system that specifies the exact movement
of stock prices (The Potential of the Bangladesh Capital Market, 2008).

Technical factors, fundamental factors and market sentiments are three crucial categorize that work behind
the increase or decrease in the demand and supply of stock prices. The factors can also categorized into
internal & external factors that influence the share prices. Internal factors such as net asset value per share
, interest rate, dividend per share, book to market ratio, price earnings ratio (P/E ratio) , leverage , earning
per share , return on equity (roe), total number of share outstanding , book value per share , total size of the
company and total age of the company .etc. External factors such as gross domestic product and other
macro-economic variables.

The study is about to investigate the determinants of stock prices of commercial banking sector in
Bangladesh and the study is emphasis on some internal factors of 30 Dhaka stock exchange (DSE) listed
commercial bank of Bangladesh over the period 2007-2016.

Objectives of the Study

The main objectives of the study are:

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  Determine different internal and external factors that influence the share prices of commercial
banks in Bangladesh.
 Check the relationship of these factors with the stock prices of DSE.

Rational of the Study

A number of studies have been conduct and used different conceptual and methodological approaches to
find out the factors influencing share prices in different stock markets. The extant literature available
powerfully supports the movement of share price as a consequence of bank specific factors. Mohammed
Belal Uddin (2009) conduct a study on “Determinants of market price of stock: A study on bank leasing
and insurance companies of Bangladesh’’ where he try to find out the relationship microeconomic factors
with the stock price by using multiple regression analysis. He found that a significant linear relationship
among market return and some microeconomic factors such as net asset value per share, dividend
percentage, earning per share of bank leasing and insurance companies. Also found non-linear relationship
among the variables is insignificant at 95 percent level of significance.

Dhaka stock exchange has been undergone significant changes since 2009. So, determinants of share prices
of listed commercial banks in Bangladesh is by far an interesting area to be known about which determinant
is or are affecting share prices of listed commercial banks in Bangladesh and the magnitude of the change.
The emphasis of this study is to explore the determinants of share prices for the listed commercial banks in
Dhaka stock exchange over the period 2007-2016.

Scope of the Study

The study used secondary data that was collected from the local office of Dhaka stock exchange. The study
used end of the share price of every commercial bank of Bangladesh. Data was mainly obtained covering
last 11 financial periods (2007to 2016) of 30 commercial banks listed in Dhaka Stock Exchange at present
in Bangladesh. Other depository institutions, nationalized commercial banks, foreign banks are not covered
by the analysis. Annual data was used in the study.

A number of specific variables like end of the year share price, net asset value per share, interest rate,
dividend per share, book to market ratio, price earnings ratio (P/E ratio), leverage , earning per share , return
on equity (roe), total number of share outstanding , book value per share , total size of the company and
total age of the company are taken for the determination of Share Prices of listed Commercial Banks in

Electronic copy available at: https://ssrn.com/abstract=3106243

Bangladesh. There may have some other macro-economic variables and rich variables which have been left
over, could provide more rich result.

Limitations of the Study

 The study is only focus on the data of stock listed commercial banks rather than the other
nationalized banks, depository institutions and foreign banks.
 All financial inclusion related data are not available for stock listed 30 commercial banks. So a few
variables are selected.
 Unavailability of various data sets.
 The study is based on Secondary data. No primary data is included.
Literature Review

Md. Reaz Uddin, S.M. Zahidur Rahman and Md. Rajib Hossain identified the what determines the
share prices of stock market focusing exclusively on financial sector of Bangladesh. They collect data from
companies like Bank, Insurance, Leasing Companies associated with financial sector ranging from 2005 to
2011 from Dhaka Stock Exchange (DSE).The variables of the study were like Net Profit after Tax (NPAT),
Price earnings ratio (P/E), Net asset value (NAV), Earnings per share (EPS). They found that Earnings per
share (EPS), Net asset value (NAV), Net profit after tax (NPAT) and Price earnings ratio (P/E) have strong
relationship with stock prices.

Zeeshan Arshad, Ali Raza Arshaad, Sohail Yousaf and Sulaman Jamil identified the determinants of
share prices for the listed commercial banks in Karachi stock exchange over the period 2007-2013. They
find out the impact of both internal and external factors on share price. Linear multiple regression analysis
was used to determine whether the selected independent variables have influence on share prices or not.
They found that earning per share has more influence on share prices and it has positive and significant
relationship with share prices, book to market value ratio and interest rate have also significant but negative
relation with share prices while other variables (gross domestic product, price earnings ratio, dividend per
share, leverage) have no relationship with share prices.

Arif SALDANLI, Mücahit AYDIN and Hakan BEKTAŞ studied to b examines the causality relationship
of the stock prices of 10 deposit banks traded in Borsa Istanbul with industrial production index, exchange
rates and money supply using monthly observations and focusing on the period between June 2007 and
October 2016. The panel causality test was used to examine the causality relationship between variables.
The analyses showed that the industrial production index is not one of the determinants of the stock prices
of the banks examined.

Faris Nasif AL- Shubiri studied on the Determinants of Market Stock Price Movements: An Empirical
Study of Jordanian Commercial Banks. The sample of study includes the 14 commercial banks of Amman
Stock Exchange for the period 2005 -2008. Simple and multiple regression analysis is conducted to find
out the relationship microeconomic factors with the stock price and found highly positive significant
relationship between market price of stock and net asset value per share; market price of stock dividend
percentage, gross domestic product, and negative significant relationship on inflation and lending interest
rate but not always significant on some years of Amman Stock Exchange in Jordan.
Nidhi Malhotra studied to determine the factors that influence stock prices in the context of National Stock
Exchange (NSE) 100 companies. A sample of 95 companies is selected for the period 2007-12 and using
linear regression model the results indicate that firms’ book value, earning per share and price-earnings
ratio are having a significant positive association with firm’s stock price while dividend yield is having a
significant inverse association with the market price of the firm’s stock.

Mian Sajid Nazir, Muhammad Musarat Nawaz, Waseem Anwar and Farhan Ahmed investigate the
role of corporate dividend policy in determining the volatility in the stock prices in Pakistan. A sample of
73 firms has been selected from Karachi Stock Exchange (KSE) indexed (KSE-100) firms for the period of
2003-2008 and fixed effect and random effect models have been applied on the panel data. The results
found that dividend policy has a strong significant relationship with the stock price volatility in KSE. The
findings are consistent with the earlier researchers of developing economies that price volatility may be
reduced by employing an effect corporate dividend policy.

Dr. Fouzan Al Qaisi, Dr. Asem Tahtamouni and Dr. Mustafa AL-Qudah studied to investigate the
effect of some factors on market stock price such as Return on Asset (ROA), Return on Equity (ROE), Debt
Ratio, the Age of the Company, and the Size of the Company. To achieve the objective, the study uses
twenty insurance companies listed in Amman stock exchange during the period 2011 to 2015. The data
analysis includes simple and multiple liner regression and the results found that there is an effect between
(ROA, Debt Ratio, the Age of the Company, and the Size of the Company) and market stock price in
insurance companies listed in Amman stock exchange. Moreover, the results found that there is no effect
between ROE and market stock price in these insurance companies.
TDSH Dissanayake and EW Biyiri studied to investigate the impact of internal factors on share price:
Reference to hotel industry in Colombo stock exchange. The sample of this study was 20 hotels in Colombo
Stock Exchange (CSE) over 2011 – 2015. The independent variables are, Earnings per share (EPS),
Dividend per Share (DPS) and Return on equity (ROE). The dependent variable is Share Price (SP). This
study analysis has done through Descriptive analysis, Correlation analysis and Regression analysis.
Consequentially, this study was found; there is a significant impact between Share price (SP) with Earning
per Share (EPS), Dividend per Share (DPS) and Return on Equity (ROE) respectively further strong positive
relationship between Earning per Share (EPS) and Share Price (SP) as well as Dividend per Share (DPS)
has strong positive relationship between Share Price.

Muhammad Atiq, Muhammad Rafiq and Roohullah studied to examines the company internal factors
and macro-economic variables affecting stock prices in the Karachi Stock Exchange of Pakistan. Internal
factors are earnings per share and dividend per share. The macro-economic variables are represented by the
money supply, consumer price index, interest rates, and gross domestic product. A sample of 15 companies
is selected from the financial sector in KSE. Eight years data is employed in this study which extends from
the year 2001 to the year 20008. A Panel Data Regression with its two types: Random Effects and Fixed
Effects models is used. Further, Weighted Least Squares (WLS) Regression is used for analysis in order to
remove the problem of Autocorrelation. The results indicate the positive and statistically significant relation
of money supply and earning per share with stock prices.

Babar Zaheer Butt , Kashif Ur Rehman, M. Aslam Khan and Nadeem Safwan studied to examine the
stock returns variation to specific economic variables by applying a multi-factor model. The firms relating
to banking and textile sectors were selected for this study on the basis of data availability, profitability and
performance on the Karachi Stock Exchange. The data for the selected firms and economic variables
obtained for the period of 10 years. GARCH model used to analyse risk and returns relationship. The results
disclose that market return is mainly accounts variation in stock returns, however the inclusion of other
macroeconomic and industry related variables has added additional explanatory power in describing the
stock returns variation. It is found that economic exposure is higher at industry level than firm level stock
returns. Results also indicate that stock returns of different firms behave differently in similar economic
conditions that acquaint investors about the risk diversification opportunity in the stock market.

Dr. Ahmad Salem Alkhazali studied to recognize the relationship between the financial activities of
Amman stock market and the market value of its prices, through identify the nature of weighted market
value index and the market value prices, and the nature of the stock trading size and the market value prices
beside identify the relationship between the companies numbers listed in the stock market and the market
value prices during the period of 1998-2011. He found that there is a significant positive relationship
between the weighted market value index and the market value prices, and there is a significant positive
relationship between the stock trading size and the market value prices beside that there is a significant
positive relationship between the companies numbers listed in the stock market and the market prices value.

MACN. Shafana studied to examine the degree and pattern of effect of macroeconomic variables on
sectoral share price indices in Sri Lanka over the period from January 2008 to December 2012 from
employing macroeconomic factor model for monthly data. The findings from multiple regression analysis
reveal that exchange rate, treasury bill rate and inflation rate are common variables to explain the variability
of all sectoral share prices for the period of 2008 to 2012 except of Telecom sector.

Prakash Kumar Shrestha and Biggyan Raj Subedi examines the determinants of the stock market
performance in Nepal using monthly data for the period of mid-August 2000 to mid-July 2014. Empirical
results obtained from OLS estimations of behavioural equations reveal that the performance of stock market
is found to respond positively to inflation and broad money growth, and negatively to interest rate. These
findings help to design policies to stabilize or stimulate the share market in Nepal.

Mu'tasem Jarrah and Naomie Salim identifies the factors affecting the performance of the stock market
in Saudi Arabia, known as aggregate (Tadawul), while the index is called Tadawul All Stock Index (TASI).
They discuss the factors affecting the Saudi stock market, where the main factors have been identified,
together with their own sub factors. They found that shares will be in greater demand when investors have
the prospect of earning more dividends. Therefore, factors which make firms more profitable will tend to
cause a rise in stock markets.

Sung C. Bae and Gregory J. Duvall explore the relationships of U.S. aerospace company stock returns
to selected market and industry variables. They find that the market returns represented by the S&P 500
index and Department of Defense expenditures are significantly positively related to aerospace stock
returns. They found that a multiindex CAPM using selected economic and industry variables provides
additional power in explaining the variability of U.S. aerospace stock returns over a single index model
using the market index alone.

Peter Irungu Macharia and Simon Kamau Gatuhi studied whether financial performance indicators of
listed banks in Kenya influence the market price of shares measured by use of the annual average market
price of shares while financial performance indicators used were; total assets, net advances, total liabilities,
deposits and profit before tax. Secondary data was used for the period 2004 to 2011 for all the variables.
They found that a single financial indicator is not enough to influence the market price of shares. The second
key finding is that key financial indicators have a significant combined influence and effect on market price
of shares. Arising from the findings of the study it would be advisable to extend this study by including
additional financial performance variables like risk weighting of the banks, dividend per share and earnings
per share.

Empirical Model

Panel data is the combinations of cross-sectional and times series data. This study tests the influence of
changes in combination of different variables of the banks on the share prices of the listed commercial
banks of Dhaka stock exchange. This study employs the panel data analysis that allows the unobservable
heterogeneity for each observation contained in the sample to be removed and multicollinearity among
independent variables to be alleviated. The data for this analysis used the cross sectional and time series
data (strongly balanced panel data) for 30 companies during the period from 2007 to 2016.

For the purpose of estimating the effects of independent variables on the share price, three estimation
models were used such as pooled ordinary least squares (OLS), the random effects, and the fixed effects.
This study employs Ordinary Least Squares (OLS) that may produce inconsistency of heteroskedasticity
and multicollinearity problems. The main difference between random effects and fixed effects is that
fixedeffects permits for correlation between unobserved effects and the explanatory variables while random
effectsneeds these to be uncorrelated. In addition, this study applied the Durbin-Wu-Hausman specification
test to find out which model, either fixed or random effects, best describes our estimation.

In order to determinants of share prices of listed commercial banks in Bangladesh, the study conducted a
lineer regression analysis using the following regression model.The model used to determine the association
between the dependent and independent variables.

Sp = α0 + α1 NAV P/S + α2 IR + α3 DPS + α4 BMR + α5 P/R + α6 LEV + α7EPS + α8 ROE + α9 S

O + α10 BV P/S + α11 Size + α12 Age + ∈
Where:
Sp = Share Price
α0 = Intercept of regression line
α1 NAV P/S = Coefficient for Net asset value Per share (NAV P/S)
 α2IR = Coefficient for Interest rate (IR)
α3DPS = Coefficient for Dividend per Share (DPS)
α4BMR = Coefficient for Book to Market Ratio (B/M Ratio)
α5PER = Coefficient for Price Earnings Ratio (P/E Ratio)
α6LEV = Coefficient for Leverage (LEV)
α7EPS = Coefficient for Earning per share (EPS)
α8 ROE= Coefficient for Return on Equity (ROE)
α9 S O= Coefficient for Total Number of Share Outstanding
α10 BV P/S = Coefficient for Book Value Per Share
α11 Size = Coefficient for Total Size of the company.
α12 Age = Coefficient for Total Age of the company
∈ = Random Error
Sample Size of the Study

Stock listed 30 commercial banks was taken as samples of this study. 10 years data are collected for the
analysis from period 2007 to 2016. There are 300 observations of 30 groups for each 13 variables.

1. AB Bank 11. ICBI Bank 21. Premier Bank

2. Al Arafah Bank 12. IFIC Bank 22. Pubali Bank

3. Bank Asia 13. Islami Bank 23. Rupali Bank

4. Brac Bank 14. Jamuna Bank 24. Shahjalal Islami Bank

5. The City Bank 15. Merchantile Bank 25. SIBL

6. Dhaka Bank 16. Mutual Trust Bank 26. South East Bank

7. Dutch Bangla Bank 17. National Bank 27. Standard Bank

8. Eastern Bank 18. NCC Bank 28. Trust Bank

9. Exim Bank 19. One Bank 29. United Commercial Bank

10. First Security Islami Bank 20. Prime Bank 30. Uttara Bank

Details of variables taken

 Variables Short Type Calculation
Share Price SP Dependent Share price at the end of the year
Interest Rate IR Independent Cost of fund of individual commercial bank
Net Asset Value Per NAV P/S Independent Net Asset Value/ Number of Equity Shares
Share Outstanding
Leverage LEV Independent Total Liabilities/Shareholder Equity
Earnings per Share EPS Independent [Net Profit After Tax-Preference
Dividend]/Number of Equity Shares
Outstanding
Return on Equity ROE Independent Net Income/Shareholder's Equity
Dividend Per Share DPS Independent (% age of dividend/100)*Face Value
Book to market ratio B/M Independent Book Value Per Share/Market Value Per
Ratio Share
Price to earnings ratio P/E Ratio Independent Market Value Per Share/Earnings Per Share
Share Outstanding Share Independent Total Number of Share Outstanding
Book Value Per Share BV P/S Independent Book Value/ Total Number of Share
Outstanding
Total Size of the Bank Size Independent Bank total assets as reported in monetary
units
Total Age of the Bank Age Independent The length of time that the bank has existed

After the data were collect, the study used Stata version 21 software to analyze the raw data. In this study
employed descriptive statistics, correlation statistical test, Levin -Lin- Chu Unit- Root Test, normality test,
heteroskedasticity test, multicollinearity test and the regression analysis.

Sources of Data
 Secondary
Data

Findings

Secondary source of data is the foundation of this study. For the purpose of this report I have collected data
from annual reports of 30 stock listed commercial banks from 2007 to 2016, different research paper, and
articles regarding financial inclusion of Bangladesh and visit world bank website.

Analysis of Panel Data

Descriptive Statistics
It can be observed from the table that depicts the descriptive statistics for twelve variables affecting price
of 30 commercial banks of Bangladesh listed and traded in DSE. Share Price ranges from 0.0 to 1000 with
mean value equal to 92.42 and standard deviation measuring 158.98. Second variable of investigation is
dividend per share. It ranges from 0 to 39.50; whereas mean value for dividend per share is 2.25 and
standard deviation is 2.79. Interest rate is third variable that determines the changes in stock prices. Our
data represents that minimum value for this variable is 0 and maximum value is 9. Table also represents the
mean value for earning volatility to be 0.088 and standard deviation to be 0.5182. In our model net asset
value per share is fourth variable that affects price volatility of stocks traded in DSE. Net asset value per
share ranges from minimum of -67.51 to a maximum of 373. Mean value of the variable equals 29.90 with
standard deviation 46.71. Return on equity is fifth explanatory variable affecting price volatility. The values
of leverage range from -0.05 to 4.68, having mean value equal to 0.20 and standard deviation equaling .39.
Next independent variable is leverage. Table show that the values for leverage range from -13.22 to 27.27
with mean value of 10.47 and standard deviation equaling4.79. Earnings per share is seventh variable that
determines the changes in stock prices. Earnings per share ranges from minimum of -3.89 to a maximum
of 142.56. Mean value of the variable equals 6.60 with standard deviation 13.71. Eighth variable of
investigation is number of share outstanding. It ranges from 0 to 496809.2 million; whereas mean value for
share outstanding is 10710.81 million and standard deviation is 43709.05 million. Next independent
variable is book value per share. Table show that the values for book value per share range from -15.11 to
358.63 with mean value of 20.89 and standard deviation equaling 46.46. Book to market ratio ranges from
-3.27 to 3.65 with mean value equal to 61.64 and standard deviation measuring .8373. Eleventh variable of
investigation is price to earnings ratio. It ranges from -72.67 to 287.95; whereas mean value for price to
earnings ratio per share is 15.04 and standard deviation is 25.54. Total Size of the Bank ranges from 522
million to 1527892 million with mean value equal to 161541 million and standard deviation measuring
173165.2 million. Last variable in the proposed regression model is total Age of the bank. The measure for
this variable ranges from 6 to 35 year, having mean value of 18.53 and standard deviation of 7.38.

Correlation statistical test

Above table shows the results for correlations among explanatory variables affecting share price. Data from
above table shows that share price has positive significant correlation with dividend per share (0.3087), net
asset value per share (.4433), earnings per share (.3586), book value per share (.0611) and price to earnings
ratio (.4732). Data from above table shows that share price has positive but non-significant correlation with
return on equity (.0023) and leverage (.0046). Data from above table also shows that share price volatility
correlate negatively with interest rate (-.0463), total number of share outstanding (-.0601), Book to market
ratio (-.2870), total size of the bank (-.1931) and total age of the bank (-.0112).

Second variable in regression equation is dividend per share. Dividend per share has significant positive
correlation with net asset value per share (.1574), return on equity (.0605), leverage (.1464), and earnings
per share (.2953).Dividend per share correlates negatively with interest rate (-.0251), share outstanding (-
.0292), book value per share (-.0375), book to market ratio (-.1367), total size of the bank (-.1148) and total
age of the bank (-.0138). Interest rate is third variable and has positive significant correlation with leverage
(.0322), share outstanding (.0024), book value per share (.0065) and book to market ratio (-.0516). Interest
rate correlates negatively with net asset value per share (-.0121), return on equity (-.0070), earnings per
share (-.0246), price to earnings ratio (-.0370), total size of the bank (-.0115) and total age of the bank (-
.0446).Net asset value per share is fourth variable and has positive significant correlation with return on
equity (.3085), leverage (.2343), earnings per share (.2301), price to earnings ratio (.0187) and total age of
the bank (.0444). Net asset value per share correlates negatively with share outstanding (-.0176), book value
per share (-.0392), book to market ratio (-.0768) and total size of the bank (-.1034).

Fifth variable in regression equation is return on equity. Return on equity has significant positive correlation
with earnings per share (.2951) and share outstanding (.0288). Return on equity correlates negatively with
leverage (-.0676), book value per share (-.0738), book to market ratio (-.1509), price to earnings ratio (-
.0379), total size of the bank (-.1009) and total age of the bank (-.1379).Leverage is sixth variable and has
positive significant correlation with earnings per share (.1107), share outstanding (.0821), book value per
share (.1518), book to market ratio (.3154), price to earnings ratio (.0839) and total size of the bank (.1133).
Leverage correlates negatively with total age of the bank (-.1590). Earnings per share is seventh variable
and has positive significant correlation with book value per share (.0988). Leverage correlates negatively
with share outstanding (-.0250), book to market ratio (-.1736), price to earnings ratio (-.0456), total size of
the bank (-.1514) and total age of the bank (-.0810). Eighth variable in regression equation is number of
share outstanding. Number of share outstanding has significant positive correlation with book to market
ratio (.0540) and total size of the bank (.0104). Number of share outstanding correlates negatively with
book value per share (-.0163), price to earnings ratio (-.0427), and total age of the bank (-.1374). Book
value per share is ninth variable and has positive significant correlation with book to market ratio (.4728),
total size of the bank (.0784) and total age of the bank (.0968). Book value per share correlates negatively
with price to earnings ratio (-.0266).

Book to market ratio is tenth variable and has positive significant correlation with total size of the bank
(.3675) and total age of the bank (.1313). Book to market ratio correlates negatively with price to earnings
ratio (-.118). Price to earnings ratio correlates negatively with total size of the bank (-.0973) and total age
of the bank (-.0893). Last variable in regression equation is total size of the bank. Total size of the bank has
significant positive correlation with total age of the bank (.2466).

Unit root test (Levin-Lin-Chu test)

The study employed a panel research approach to attain its stetted objective. The approach combines the
attributes of time series and cross-sectional. Therefore, firstly tested the data and variables to a unit root
test. According to the test results given on bellow table, it indicates that all the variables were stationary at
level. Also, they are significant at 1%.
 Panel data unit root test (Levin -Lin- Chu Unit- Root Test)
H0 : Panels contain unit roots Number of panels 30
Ha : panels are stationary Number of periods 10
AR parameter Common Asymptotics N/T-> 0
Panel means Included
Time trend Not Included
ADF regressions : 1 lag
LR variance : Bartlett kernel , 6.00 lags average (chosen by LLC)
Variable Name Statistics P-value
Share Price Unadjusted t -17.4045 0.00000
Adjusted t -14.253
Dividend per share Unadjusted t -45.6605 0.00000
Adjusted t -41.5480
Interest Rate Unadjusted t -14.8418 0.00000
Adjusted t -9.8252
Nat Asset Value per Unadjusted t -44.8607 0.00000
share Adjusted t -46.0792
Return on Equity Unadjusted t -14.2917 0.0000
Adjusted t -11.1870
Leverage Unadjusted t -13.4906 0.0000
Adjusted t -9.0039
EPS Unadjusted t -42.0632 0.0000
Adjusted t -11.3573
Number of Share Unadjusted t -5.5424 0.0000
Outstanding Adjusted t -3.7246
Book Value per share Unadjusted t -17.7023 0.0000
Adjusted t -14.1290
Book Value to Market Unadjusted t -5.149 0.0000
Value ratio Adjusted t -1.8745
Price earnings ratio Unadjusted t -14.5463 0.0000
Adjusted t -11.2840
Size of the company Unadjusted t 2.1880 0.0000
Adjusted t 4.1253
 Total age of the Unadjusted t 5.3450 0.0000
company Adjusted t 3.7103

Test Normality Data

Normality refers to the shape of data distribution for an individual metric variable. Normality is tested using
graphical and statistical tests. The simplest test for normality is a visual check of the histogram that
compares the observed data values with distribution approximating the distribution.

A non –significant result (P-value of more than 0.05) indicates that the distribution is normal. Meanwhile,
a significant result (P value of less than 0.05) indicates that the distribution violates the assumption of
normality. Above table shows that the P-value of the taken variable less than 0.05. So, this model is violates
by normal distributions. This model used large sample size and, therefore, there is no serious departures
from the assumption of normality of the error terms were detected.

Heteroskedasticity Test
The Breusch-pagan test is considered to identify any linear form of heteroskedasticity. This study analyze
Breusch-pagan test to check if there is any problem of heteroskedasticity. The Breusch-pagan tests of the
null hypothesis that the error variances are all equal versus the alternative that the error variance are a
multiplicative function of one or more variables.
The study made the following hypothesis:
H0: Heteroskedasticity is not present.
H1: Heteroskedasticity is present

After heteroskedasticity test, the result is found P-value is 0.000which is less than 5% of level of
significance. Hence, we reject the H0.

Testing for Multicollinearity

Multicollinearity exists when the independent variables are highly correlated. Usually the multicollinearity
is exist if the correlation between two independent variables is more than 0.9(r=0.9 or above) (pallant,
2005). But in our correlation table shows that there is no such high correlation between independent
variables.

In this circumstance, Variance inflation factor VIF or tolerance (TOL) are broadly used technique to test
for multicollinearity. VIF measures the rise of the variance of a coefficient as consequence of collinearity.
Tolerance (TOL) represented by 1-R*.Variable inflation factor is straight connected to the tolerance value
(VIF=1/TOL).

More than 10 for VIF values or TOL less than 10 indicates high degrees of collinearity or multicollinearity
among the independent variables (Hair j.,Babin B, Anderson and Talham 2006). From the table we find
that the values tolerance (TOL) less than 10 indicates high degrees of collinearity or multicollinearity
among the independent variables prove that the data is free of multicollinearity.
Ordinary Least Squares (OLS) Model

It can be observed from the table that dividend per share, net asset value per share, return on equity,
leverage, earnings per share, book value per share, book to market ratio and price to earnings ratio proved
to be significant in confidence level of five percent. Share outstanding, total size of the bank and total age
of the bank is found insignificant while interest rate is found highly insignificant while interest rate is found
highly insignificant.
The regression shows that the model has high adjusted R-squared (61%) and seems to be capable to describe
differences in the share price. Furthermore, the F-statistics shows the significance of the regression model.

Share price = 63.18685+ 1.4975 NAV P/S -.33233 IR + 7.664 DPS -36.402 BMR + .674 P/R -5.771
LEV + 2.970 EPS -93.293 ROE + .00000362 S O + 06242 BV P/S + 00000153 Size -.4628 Age + ∈

The coefficient value of leverage of the bank is -5.771 which represents that, when other independent
variables are constant, one unit of leverage increase will lead to the 5.771 unit decease in share price. The
coefficient value of dividend per share of the bank is 7.664 which represents that, when other independent
variables are constant, one unit of dividend per share increase will lead to the 7.664 unit increases in Share
price.

Further, The Table depicts that, the association between interest rate, return on equity, leverage, book to
market ratio, total age of the bank and the share price have positive relation and is statistically significant.

Heteroskedasticity and multicollinearity are the crucial problems that might be occurring in the regression
model. Those issues may produce inconsistency of the estimation of this model.

Fixed effects model

The fixed effect models assume that the coefficiencies are changed amongst the units and time. That
indicates, the variations in the fixed effects decide the variations in behaviors of units, considering the slope
coefficiencies as constant (Bayrakdaroglu et al., 2013).

It can be observed from the table that dividend per share, net asset value per share, return on equity,
leverage, earnings per share, book value per share, book to market ratio, price to earnings ratio, total size
of the bank and total age of the bank proved to be significant in confidence level of five percent. Share
outstanding is found insignificant while interest rate is found highly insignificant while interest rate is found
highly insignificant.
Share price = 289.136 + 1.409 NAV P/S +2.470 IR + 7.596 DPS -21.551 BMR + 2.297 P/E -9.424
LEV + 2.874 EPS -99.087 ROE -.00001028 S O + .4047 BV P/S + 000126 Size -.11.049 Age + ∈
The coefficient value of leverage of the bank is -9.424 which represents that, when other independent
variables are constant, one unit of leverage increase will lead to the 9.424 unit decease in share price. The
coefficient value of dividend per share of the bank is 7.596 (highest amongst the independent variables that
also portative coefficient value) which represents that, when other independent variables are constant, one
unit of dividend per share increase will lead to the 7.596 unit increases in share price.

The value of rho .5100 reveals that 51.00% of the variance is explained due to the differences across panels
in the sample undertaken. The F-test is a test to see whether all the coefficients in the model are different
than zero and it explains the goodness fit of the model.
From the table, the F-value 34.86 is statically significant at 1% level which indicates that an overall this
model is goodness fit with the dependent and independent variables in this study.
Further, the overall R2 = 0.4149 indicates that nearly 42% of variance of share price is explained by all
independent variables in the model.

Random effects model

Random effect model contains that constant coefficiencies between the units do not differ. Under this
random effect, individual effects of the companies are coincidental, assuming that the constant will be
measured randomly in order to obtain unconsidered independent variables or the error (Bayrakdaroglu et
al., 2013).

From the bellow table that dividend per share, net asset value per share, return on equity, leverage, earnings
per share, book value per share, book to market ratio and price to earnings ratio, proved to be significant in
confidence level of five percent. Total size of the bank and total age of the bank are found insignificant
while interest rate and share outstanding are found highly insignificant while interest rate is found highly
insignificant.
Share price = 96.74028 + 1.483 NAV P/S +.3975 IR + 8.2108 DPS -34.2099 BMR + 2.5865 P/E -
7.2670 LEV + 3.0387 EPS -93.9364 ROE -2.08 S O + .5758 BV P/S + 0000275 Size -1.4837Age + ∈

The coefficient value of dividend per share of the bank is 8.2108 which represents that, when other
independent variables are constant, one unit of dividend per share increase will lead to the 8.2108 unit
increases in share price. The coefficient value of leverage of the bank is -7.2670 which represents that,
when other independent variables are constant, one unit of leverage increase will lead to the 7.2670 unit
decease in share price. The value of rho .1153 reveals that 11.53% of the variance is explained due to the
differences across panels in the sample undertaken. The F-test is a test to see whether all the coefficients in
the model are different than zero and it explains the goodness fit of the model. Further, the overall R2 =
0.6198 indicates that nearly 61.98% of variance of share price is explained by all independent variables in
the model.

Hausman specification test

In order to decide which one of the alternative panel analysis methods (fixed effects model and random
effects model), hausman test has been used. The Hausman test refers to the difference in the coefficient of
the output obtained in fixed effects and random effects. The Hausman test has two restrictions, it requires
strict exogeneity of error term and assumes that both idiosyncratic error and unobserved effects have
constant variances (Baltagi, 2005).
For the study …H0: Random effect is appropriate and H1: Fixed effect is appropriate .It can be observed
from the table that Prob>chi2 =.0005. Here P value is not significant that is chi-square value is less than
0.05.Hence, we reject the H0. And accept fixed effect model as our appropriate model for estimation.

Conclusion and Policy Implications

Main objective of the study was to scrutinize the determinants of stock prices of banking industry in
Bangladesh. From the Hausman specification test we find that P value is not significant that is chi-square
value is less than 0.05. Consequently, we accept fixed effect model as our appropriate model for estimation.
From the Fixed effects model we find that dividend per share, net asset value per share, return on equity,
leverage, earnings per share, book value per share, book to market ratio, price to earnings ratio, total size
of the bank and total age of the bank proved to be significant in confidence level of five percent. The
coefficient value of dividend per share of the bank is 7.596 (highest amongst the independent variables that
also portative coefficient value) which represents that, when other independent variables are constant, one
unit of dividend per share increase will lead to the 7.596 unit increases in share price. Stock price of banks
reflect the value of projected future revenues. So DSE listed banks of Bangladesh should take right
measurement for the increase of its stock prices like try to improve dividend per share, earnings per share,
book value per share, book to market ratio, price to earnings ratio and total size of the bank and try to
decrease net asset value per share, interest rate, book to market ratio.Future research could be conducted by
taking into consideration some other variable like money supply, consumer price index etc. with longer
time period.
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