Abstract:
This study investigates the impact of firm internal factors on share prices in financial sector
firms listed on the Colombo Stock Exchange (CSE). Although extensive research exists on
the influence of macroeconomic factors on share prices, there needs to be more understanding
of how internal firm factors affect share price movements in emerging markets like Sri Lanka.
Addressing this gap, the study focuses on the financial sector, which is critical for the economy
and has unique characteristics compared to financial industries. The research aims to
determine the relationships between critical internal factors—Dividend Yield, Earnings Per
Share (EPS), Book Value Per Share (BVPS), Dividend Per Share (DPS), Return on Equity
(ROE), Firm Size, Financial Leverage, and Price-Earnings Ratio (P/E Ratio)—and their
impact on share prices. A sample of 20 financial firms was analyzed using secondary data
from 2017 to 2022 and the software E views 10. was used. Regression and correlation analyses
were conducted, and the Random Effects Model was applied to assess the influence of these
variables on share prices. The results reveal that Dividend Yield, EPS, Financial Leverage,
ROE, and the P/E Ratio are negatively associated with share prices, while DPS and BVPS
have a positive relationship. DPS and ROE, in particular, significantly affect share prices.
These findings suggest that investors in the CSE's financial sector can make more informed
investment decisions by focusing on these critical internal factors. The study contributes to
the existing literature by highlighting the significance of internal factors in determining share
prices, particularly in an emerging market like Sri Lanka. This research provides valuable
insights for academics and investors interested in the financial dynamics of developing
economies.
