Abstract:
Theoretically, there are numerous components which have predictable influence on
share price of the company including company's performance, industry's performance,
investors' sentiment and economic factors. Precisely the company's performance
components include announcement on earnings, profits and dividends, and future estimated
earnings . These components help to improve the market efficiency of
the company. The purpose of this study is to examine the impact of market efficiency on share
price and test market efficiency in Colombo Stock Exchange (CSE) by using a sample of
53events (15 companies) and earning price per share from beverage and tobacco companies
listed in Colombo Stock Exchange during a period of 5 years from 2010 to 2014. A sample of
15 listed companies were randomly selected among the 23 beverage & tobacco companies
listed in CSE. The market efficiency was measured using earning per share (EPS) and
dividend announcement as independent variables, while the market price per share (MPS) is
considered as the proxy for the share price in the study as a dependent variable. The
statistical analysis including regression model is used to find out the impact of EPS on MPS
as well as a standard event study method is also considered to explore whether market is
efficient or not in particular period considered for the study. The result of the standard event
study method shows that the market slowly responds to the price adjustments in the post
announcement period to information implies that market is of informational inefficient. It can
be observed through the trend of cumulative average abnormal returns (CAARs). Further,
regression analysis shows that there is a positive significant impact by the earning price per
share on the market price per share. Consequently, it can be concluded that the market
efficiency has significant impact on the share price in the beverage and tobacco sector of Sri
Lanka.
