Abstract:
This study analyses certain fundamental factors which are determinants of equity share
prices in Sri Lanka. These factors are earning, growth, leverage, risk and company size.
The literature review of the study have identified various aspects of equity share valuation.
The theoretical and empirical studies have been used to formulate the foundation for the
study. To assess above mentioned fundamental factors on share prices, multiple regression
analyze was used with a log linear model as a cross section analyses related to the period
1993-2001. The sample for the study was selected from companies registered and listed in
the Colombo Stock Exchange. The sample consisted of 40 companies from a group of239
companies in all industries.
Result show that dividends appear to be a powerful influence in determining share prices
than growth and retained earnings. Business risk and financial risk cannot be assessed
because they are redundant variables. Company size is having a considerable influence on
share prices and, accordingly large companies enj oy higher values for shares.
On the basis of findings the following observation was made about the stock market in Sri
Lanka.
"The determinants of valuation of the share prices are not very clear. It goes mainly by
considering dividend and company size factors which are readily measurable. However,
factors like growth and risk cannot be measured with more certainty"
