Determinants of share price among non-financial listed firms across sectors in Pakistan

Abstract

Share price performance is considered as one of the most important area of financial research by investors, managers, financial analysts and government as share price is a centre of gravity for the investment decisions. Previous studies have identified several determinants of share price. Most of these studies have focused on firm-level determinants. The recent developments emphasized on the effect of multilevel determinants (i.e. firm-level, sector-level and country-level) on share price. However, there is scare research focusing on examining the impact of financial sustainability on share price. Financial sustainability is relatively a new concept that demands further exploration as it can be beneficial for the firms. For this reason, this study included financial sustainability as one of the variables in firm-level determinants affecting share price. Thus, this study aims to identify the multi-level determinants of share price across non-financial listed firms and sectors in Pakistan. The present study contributes to the existing body of literature from three distinctive manners. Firstly, the current study examines the impact of multi-level determinants on share price. Secondly, this study investigates the mediating effect of dividend policy on the relationship between firm-level variables including firm’s financial sustainability and share price. Thirdly, this study highlights the relative significance of each level of variables that best explains the share price. The current study performs analysis on 181 non-financial firms across sectors listed on Pakistan Stock Exchange (PSX) from year 2000 to 2017. Moreover, the presents study utilizes different estimators such as descriptive statistics, correlation matrix, diagnostic tests, and ordinary least square (OLS) regression model including fixed-effect method to estimate the relationship between dependent and independent variables. Additionally, Process Macros is used to test the mediating effect. In order to test nested effect, this study employs artificial nested testing procedure (ANTP) and nested model statistics. The findings of this study reveal that the effect of firm-level, sector-level and countrylevel determinants varies across non-financial listed firms and sectors in Pakistan due to unique nature of each sector. Moreover, dividend policy mediates the relationship between firm-level variables and share price across non-financial firms and sectors in Pakistan. Furthermore, firm-level determinants are the best explanatory variables for share price followed by sector-level and country-level determinants across nonfinancial firms in Pakistan, which differs across sectors due to sectoral behaviour. The outcomes of this study provide policy direction and practical implications to firm’s management, stakeholders and policymakers to pinpoint the important factors and its implications on share price in order to safeguard all stakeholders from potential losses. Several limitations that may extend prospects for future research need to be acknowledged. The major limitation is about limited data availability of all nonfinancial firms listed at PSX. As financial sustainability is a primary challenge for financial sector especially in developing countries, therefore investigation of financial sustainability as firm-level determinants along with sector-level determinants on the share price behavior of financial sector firms is a promising agenda for future research.