Students’ Research Symposium - Department of Finance (SRS-DFIN)

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    Short-Term Interest Rates and Expected Stock Returns: Evidence from Sri Lanka
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Subasinghe, S.A.D.P.S.
    The relationship of Sri Lankan short term interest rate and expected stock return was different from and foreign market. The theories and prior foreign studies results were negative relationship among the variables. This study examines the relationship between short term interest rates, as measured by Treasury bill yields of 91 days, 182 days and 364 days Treasury bill rates and stock returns in Sri Lanka. Regression analysis is employed to analyze the short term interest rate and stock return for the period of 2005 to 2015. It is employed on monthly, quarterly and annual time horizon. Stock returns based on All Share Price Index (ASPI) and S&P SL 20 index are used in the study and Treasury bill yields of 91 days, 182 days and 364 days are considered as the short term interest rates in this study. Furthermore analyze the periodically to identify the effect of after end the war in to the Sri Lankan economy in relating to the current research. The result of current research shows that negative relationship between interest rate and stock return in Sri Lanka. Furthermore, the Treasury bill rates effect on Stock return, becomes lager and more significant with longer maturity Treasury bill yield. Treasury bill yields explain up to 13%, 17%, and 13% in monthly, quarterly and annual returns respectively. Further it reveals that the explanatory power increases with the longer time horizon.
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    The Impact of Leverage on Real Earnings Management: Evidence from Listed Manufacturing Companies in Colombo Stock Exchange
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Kavinda, D.D.C.
    The amount of money that company has earned during a given period, usually a quarter or year, as reported based on appropriate accounting standards. Accounting earnings help to quantity the company's profitability, but investors should consider not just earnings quantity, but also earnings quality, in evaluating a company's accounting earnings. For recent years studies were done with regard to the accruals earnings management. Due to the high scrutiny of the lenders and the tendency to detect by the auditors, concepts have been changed to make economic sacrifices rather than manipulating accounting figures, by managing earnings through real activities such as practices that are less likely to draw auditor or regulatory scrutiny. The primary aim of this study is to examine the impact of Leverage on Real Earnings Management activities. The study was conducted using the sample of twenty five manufacturing companies’ listed in Colombo Stock Exchange with a firm-quarter observations for the period of 2009/2010 to 2014/2015 using a panel data analysis. The analysis is done based on the model developed by Roy Chowdhury in 2006.The results indicated that manufacturing companies are having abnormal cash flows and production cost in their operations and there is a significant positive association between the leverage and the real earnings management in the manufacturing companies listed in Colombo Stock Exchange, Which in turn could effects the earnings quality of the companies.
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    A Study on Mandatory Offer Announcements and its Impact on Stock Return in Colombo Stock Exchange
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Ekanayaka, E.M.R.K.
    This study attempts to examine the impact of mandatory offer announcements on stock return on the Colombo Stock Exchange and highlights the mandatory offers and its grounds in the legal system in Sri Lanka. Although there are number of studies done on mandatory offers, it is hard to find the studies on impact of mandatory offers on stock return in Sri Lankan context. The primary aim of this study is to study the impact of mandatory offers on stock return in Colombo Stock Exchange using the sample from year 2010 to 2014. The study used secondary data for the purpose of analysis employing the event study methodology. More specifically, it employs the market model in generating abnormal returns surrounding mandatory offer announcement. The findings of this study demonstrated that on average market reacts positively to mandatory offer announcements. The market takes considerable time to fully incorporate information contained in mandatory offer announcements by the bidder firms and considerable anticipatory effect reflect the target firms. This research will be important to all those take interest in the share market. Especially it is more important to the investors, managers of the companies’ stock exchange regulatory agencies in their decision making.
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    Integration of Colombo Stock Exchange and Global Stock Markets
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Silva, A.H.S.
    The examined the Integration of Colombo Stock exchange and global stock markets with the objective of identify the Influence on S&P SL20 by the SENSEX, S&P500, Nikkei225, SSE Composite index and to identify most influenced stock market indices among selected indices to S&P SL20. The most researchers study only the global and south Asian countries and research on the topic in Sri Lankan context is lacking. In this study, month-wise average prices of major stock market indices like SENSEX, S&P500, Nikkei225, SSE Composite index and SNP SL20 have been selected. These indices choose because they are the major stock market indices. This research has used only secondary data for the purpose of analysis and the sources of data include the Colombo Stock Exchange web site (CSE) and yahoo finance website. Secondary data collected for 60 months from 2009 to 2014. Multiple regressions have been tested for the select stock market indices. The results of this study shows that the overall model is not significant and that support the view that there is no any integration between domestic and international financial markets.
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    Relationship between Ownership Concentration and Company Performances: Empirical Evidence from Colombo Stock Exchange
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Perera, N.P.D.H.S.
    The objectives of this research are to find out degree of Ownership concentration and to identify the relationship between Ownership Concentration and company performance using data of 62 listed companies in Colombo stock exchange (CSE) over the period of 2013 – 2014. This research has used only secondary data and main source of data include the annual report of the selected companies. Empirical research was conducted based on the 130 observations and findings base on the. Data are analyzed by using ordinary least square (OLS) regression as pooled data analysis with year dummy variable. Herfindal index (HHI) variable, percentage shares held by the largest shareholder (SH 1) variable and percentage shares held by top 10 largest shareholders (SH 10) variable to measure the Ownership concentration are the independent variable. Return on assets (ROA) use as a dependent variable to the model and other than to the Concentration variables, Liquidity, Leverage, and Age of the company, Total assets and Total sales use as a control variable to the model. Based on the Ownership concentration variables – HHI, SH(1) and SH(10) identified that Sri Lankan companies are having a high degree of ownership concentration and this high degree of ownership concentration does not have statistically significant relationship with company performances i.e. listed firms which having high degree of ownership concentration does not have any relationship with achieving company performance. However the explanatory power of the overall model (R2 value) is below the average and further research are necessary to increase the explanatory power of the overall model.
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    Corporate Social Responsibility Practices Evidence from Selected Companies in Colombo Stock Exchange
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Gallage, G.I.D.
    This study investigates about the corporate social responsibility practices based on selected companies in Colombo Stock Exchange (CSE). The study also looks into the actual contribution of CSR activities conducted by companies of CSE. The study documents the best corporate social responsibility reporting sector of Colombo stock exchange. Study also identifies how Sri Lankan companies perceive Corporate Social Responsibility. This research has used secondary data for the purpose of analysis and the sources of data include the annual reports of selected companies. This study has selected ten sectors and from each those ten sectors six companies have been selected. These ten sectors include Bank and Financial, Hotels and Travels, Beverage, Diversified holdings, Manufacturing, Trading, Plantation, Construction, Health care and services. Study results suggested that banking sector is the best for practicing corporate social responsibility. Companies have different reasons for issuing CSR reports. Information on CSR activities is measured valuable by both academic researchers and business managers as it provides a working framework on which future studies can be based. In addition, it improves understanding of the social obligations, which corporate entities are obliged to their stakeholders and society in general.
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    Determinants of Initial Public Offering Pricing in Colombo Stock Exchange: Study of Under-Pricing
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Perera, M.H.N.
    Initial Public Offering (IPO) underpricing is the most crucial area which embedded with IPO pricing. IPO underpricing can define as increase the first day closing price of IPO share at market than its offer price. Merely IPO underpricing is one of the favorable occurrences to the company as well as to the investors who have invested on those shares. Therefore, this study is to analyze whether there is an IPO underpricing exist in Colombo Stock Exchange and identify the determinants of IPO underpricing. Other than that this research paper addresses the impact of civil war towards the IPO underpricing. In specific, the study addresses the relationship between the IPO underpricing and supposed determinants throughout a regression analysis. By accepting the alternative hypothesis researcher posit that offer price and issue size has negative significant influence on IPO underpricing. And debt to equity (D/E) ratio, Sector P/E ratio, and cumulative average return of ASPI has significant positive relationship with IPO underpricing. The variables, Market capitalization, Earnings per share (EPS) ,Net profit ratio, Oversubscription rate are recognize as insignificant determinants in analyzing IPO underpricing in Colombo Stock Exchange since some absence of ordinary least square (OLS) assumptions and contrary to the expectations of literature reviews in this area. Moreover this study observes that average IPO underpricing is increase in post war period than the prior to war period due to the economic and political stability after the war ends.
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    Impact of the Dividend Announcement for Share Price Volatility in Sri Lanka: Empirical Evidence from Colombo Stock Exchange
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Jayakodi, J.A.D.A.
    Stock price reaction to the dividend announcement is a topic that discuses in number of empirical research in the developed and emerging stock markets over the last several decades. This study attempts to examine stock price reaction to dividend announcements in Sri Lankan Share Market with a sample of 20 major companies from those listed on the Colombo Stock Exchange (CSE), which have made a dividend announcement for the year 2014/2015. This study employs observation as methodology. More specifically, it employs the market returns surrounding dividend announcements. Findings show that there is a considerable informational content of dividend announcements in Colombo Stock Exchange. The investors consider dividend announcements as favorable news. The stock price reacts positively to dividend announcements in Sri Lankan Capital Market. More specifically, dividend increase announcements support the information content of dividend hypothesis. Moreover, dividend decrease announcements and dividend no change announcements against with the information content of dividend hypothesis. In addition, the results in this study has provided a light on the pathway to discovering impact of dividend announcement to a share price volatility. I hope this research will be important to all those takes interest in the share market. Especially, it is more important to the investors, managers of the companies and stock exchange regulatory agencies in their decision-making.
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    Testing the Weak Form Efficiency of Emerging Colombo Stock Exchange (CSE)
    (Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, 2015) Gunasekara, H.M.A.L.
    Efficient Market Hypothesis is a dynamic concept. A market which was not efficient in the past could be efficient today due to the changes occurring in the capital market environment. In an efficient market nobody can predict the returns and enjoy abnormal returns as the prices already reflect all the available information. Efficient Market Hypothesis can be studied under three forms as weak form efficiency, semistrong form efficiency and strong form efficiency. This study attempts to test the weak form efficiency of the Colombo Stock Exchange (CSE) and to determine what strategies to follow to make profits in CSE. In this study, daily market closing index of ASPI of CSE for five years, from June 2010 to June 2015, without adjustments, has selected as the sample. Both parametric tests and non-parametric tests have been used in this study. This study has used, Augmented Dickey-Fuller Unit Root Test, Autocorrelation Test and Runs Test for analyzing data. Augmented Dickey-Fuller Unit Root Test revealed that the ASPI index series in First Difference is stationary. Therefore, the log returns of the ASPI have been considered for the statistical tests in this study. Autocorrelation Test revealed that the return predictability exists in the CSE and confirmed that CSE is not weak form efficient within the sample period. The results of the Runs Test, which is a non-parametric test, are also consistent with the Autocorrelation Test and confirmed that the CSE is not weak form efficient within the sample period. Therefore, Technical Analysis techniques are valid in the CSE and can be utilized to generate excess returns. However, inclusion of transaction cost to the model will provided more opportunity for further studies.