THE IMPACT OF FIRMS’ INTERNAL FACTORS ON MARKET PRICE OF SHARE

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THE IMPACT OF FIRMS’ INTERNAL FACTORS ON MARKET PRICE OF
SHARE
Pham Thi Lan HUONG1
, Nguyen Trung THANH2
, Nguyen Van DUY3
, Le Xuan LINH4
Abstract
Since the financial crisis of 2008, the global economy was affected quite hard. Investors are losing their confidence in
the stock market. The authors analyzed the internal factors of shareholding companies to see how it effects on the
market price of shares in the period of 2011 to 2015. By using the quantitative analysis model with panel data model
and three models: Fixed effect, Random effect and GMM model, all indicates that all internal factors have impacts on
the share price significantly: Return on equity (ROE); Book value per share (BV); Dividend per share (DPS) and Firm
size (SIZE) have a positive impact on share price while Dividend yield (DY) has a negative impact on market price of
shares (MPS). With the values of R square in all model are 0.646, it shows that the model explained 64.6% change in
stock price through studied variables. From above results, the authors also offer some recommendations to help
investors to have more appropriate investment decisions according to the operations of business. At the same time,
enterprises also have more reasonable
Key words: Market price of shares, fixed effect, Random effect, GMM model
Tóm tắt
Từ sau khủng hoảng tài chính năm 2008, nền kinh tế toàn cầu bị ảnh hưởng nặng nề. Các nhà đầu tư bắt đầu bị mất
dần niềm tin vào thị trường chứng khoán. Nhóm tác giả tiến hành phân tích các yếu tố nội bộ hoạt động công ty cổ
phần ảnh hưởng như thế nào tới giá cổ phiếu giai đoạn 2011 đến 2015. Bằng việc sử dụng phương pháp phân tích định
lượng với mô hình dữ liệu bảng với cả 3 mô hình Fixed effect, Random effect và mô hình GMM đều chỉ ra các yếu tố
nội bộ có tác động rõ rệt tới giá cổ phiếu: Return on equity (ROE); Book value per share (BV); Dividend per share
(DPS) và Firm size (SIZE) có tác động tích cực còn Dividend yield (DY) có tác động ngược chiều lên giá cố phiếu
(MPS).Với giá trị R square các mô hình đều bằng 0.643 cho thấy mô hình giải thích được 64.3% sự thay đổi của giá cổ
phiếu thông qua các biến nghiên cứu.Từ kết quả nghiên cứu trên, nhóm tác giả cũng đưa ra một số khuyến nghị giúp
các nhà đầu tư có các quyết định đầu tư phù hợp với tình hình hoạt động của doanh nghiệp. Đồng thời các doanh
nghiệp cũng có chính sách hợp lý giúp nâng cao giá cổ phiếu của công ty mình.
Từ khóa: Giá cổ phiếu, mô hình Fixed effect, mô hình Random effect, mô hình GMM
1
National Economics University
2
School of Economics, Shanghai University, Shanghai, China; Faculty of Economics and Business Administration,
Hatay Community college, Hanoi, VietNam
3
Viet Nam Quantitative Analysis Joint Stock Company
4
Admicro VCCorp

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1. INTRODUCTION
The financial crisis of 2008 has broughtthe strong
volatility and uncertainty on the stock market [1].
Acorrding t the study by Rudd, global equity markets
have lost approximately US$32 trillion in value since
heir peak [2]. Before the crisis, stock investment is
considered as a profitability source for investors.
However; since 2008, this kind of investment becomes
risky for them. Therefore; the volatility related to
stock price gets a lot of interest from investors.
Collins is the person who had first steps in assessing
enterprises’ internal factors on market price of share [3].
He identified dividend, net profit, operating earnings
and book value per share as the prominent factors
affecting share prices in US market. After that, there
were many researchers conducting studies in various
environments.
Scholars have attributed several internal factors and
external factors as factors affecting stock price. The
company specific or internal factors are company
performance, a change in the board structure, asset
position, Dividends and earnings. The external factors
include governmental regulations, business cycle,
investor’s attitude, market conditions, natural calamities
and contingencies like strikes
Khan & et al issued an evaluation on the impact of
dividend policy on Stock prices in Malaysia. It
described that dividend yield, earnings per share, return
on equity and profit after tax are positively related to
stock prices while retention ratio have negative relation
with stock prices [4]
Also, there are a lot of studies in other stock market.
However; in Vietnam, studying about enterprises’
internal factors still has some limitation. Therefore, this
research studying on enterprises’ internal factors on
market price of share will become necessary in order to
support investors and companies which listed in Stock
market to have appropriate policy to gain their business
objectives.
2. RESEARCH METHODOLOGY
2.1 Research Model
Basing on researching model Sharif et al 2015, this
research is conducted to estimate the impact of firms’
internal factors on market price of share; and this
research is considered the impact of the firms’ internal
factors (Return on equity; Book value per share ;
Dividend per share ; Dividend yield; Price earnings;
Debt to total assets and Firm size). Models are presented
as below:
Fig. 1 Research Model
With:
Independent Variables
ROE: Return on equity
BV: Book value per share
DPS: Dividend per share
DY: Dividend yield
PE: Price earnings
DA: Debt to total assets
SIZE: Firm size
Dependent Variable:
MPS: Market price of share
Authors’ expectation about results when using this
model is as below:
Table 1. Authors’ expectation
Variable Symbol Expectation
Return on equity ROE
Book value per share BV +
Dividend per share DPS +
Dividend yield DY -
Price earnings PE +
Debt to total assets DA -
Firm size SIZE +
ROE
BV
DPS
DY
MPS
PE
DA
SIZE

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2.2 Data-analyzing method
With researching data from 2008-2015 for companies
listed in the Vietnam Stock Market, using the panel data
model is suitable. [5]
Regarding for table-data, there are three models can be
used: (1) Pooled OLS; (2) Fixed effect Model; (3)
Random Model; However; using panel data often causes
defects due to endogenous variables which internally
exist in this model. Hence, in case of meeting these
defects, we apply the Generalized Method of Moments
(GMM) developed by Arellano & Bond [6].
3. RESULTS
3.1 Descriptions Data
The statistical result shows the average value of stock
prince in Vietnam stock market since 2011 to 2015 is
32,792 VND. of which, the biggest stock price reached
173,000 of Bien Hoa Vina Cafe (VCF) in 2014. Besides,
the smallest stock price belonged to HaTien Cement
Cooperation (HT1) with 2,900VND. In additional, the
other statistical values of other stock are also described
in Table 2.
Table 2: Descriptions Data
Variable Mean
Std.
Dev.
Min Max
MPS 32792.07 29372.53 2900.00 173000.00
ROE 13.94 13.23 -76.76 97.92
BV 21788.30 9822.41 5707.76 74966.73
DPS 1326.60 1706.92 0.00 20986.21
DY 0.05 0.07 0.00 0.86
PE 24.51 82.87 -374.17 956.27
DA 0.47 0.18 0.03 0.86
SIZE 12.37 0.57 10.72 14.19
Source: Results of STATA software
3.2 Correlations
The correlation coefficient indicates a two-way
relationship between each pair of variables. The bigger
coefficient is, the more tightly the pair of variables gets.
The result presents that MPS- variable correlates the
most strongly with EPS (0.67), followed is with BV
(0.59) and lowest correlates with DY (-0.08) (table 3).
3.3 Estimating results
By panel data regression analyzing via Hausman Test,
the author want to find out the suitable model between
fixed effect and Random effect. As the result, it shows
than Random effect is more suitable (residuals and
dependent variables are independent with each other)
with p-value of 0.9998.
To address the possibility of endogenous phenomenon
in the model, the authors proceed to run GMM model to
overcome the bad phenomenon may occur in Random
effects models. The model results are shown in Table 4 .
The result of three models are the same: Factors DY has
negative impacts on MPS (negative beta coefficient and
p-value is less than 0.05). In opposite, factors ROE, BV,
EPS, DPS and SIZE have positive impacts on MPS
(positive beta coefficient and p-value is less than 0.05).
Two factors PE and DA have no impacts on MPS
(p-value is bigger than 0.05)
3.4 Discussion
ROE has positive impacts on stock price showing that
efficient operation in enterprises really makes stock
price increase. The companies operate effectively will
make profitability become higher. Hence, stock value at
present as well as in the future tend to increase if there
is no abnormality occurs. These results were consistent
with the findings of Irfan and Nishat in Karachi Stock
Exchange [7] and Khan & et al in KSE market [4].
Table 3. Correlations matrix
MPS ROE BVPS DPS DY PE DA SIZE
MPS 1
ROE 0.44* 1
BVPS 0.58* 0.26* 1
DPS 0.32* 0.62* 0.25* 1
DY -0.08 0.37* 0.05 0.79* 1
PE -0.09 -0.17* -0.14* -0.13* -0.12* 1
DA -0.30* -0.31* -0.30* -0.28* -0.14* 0.20* 1
SIZE 0.51* 0.27* 0.09 0.21* -0.08 0.01 -0.07 1
* Significant at 5%
Source: Results of STATA software

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Table 4. Regression Results
Fixed
effect
Random
effect
GMM
ROE 281.2*** 283.4*** 282.1***
(105.9) (104.8) (100.5)
BV 1.243*** 1.239*** 1.239***
(0.116) (0.115) (0.110)
DPS 8.269*** 8.256*** 8.265***
(1.384) (1.363) (1.307)
DY -225,491*** -226,433*** -226,541***
(30,087) (29,359) (28,163)
PE 0.634 0.764 0.795
(12.87) (12.70) (12.17)
DA -8,964 -8,979 -9,015
(6,150) (6,107) (5,865)
SIZE 14,873*** 14,785*** 14,789***
(2,136) (2,030) (1,956)
C -178,672*** -177,475*** -177,487***
(26,595) (25,342) (24,381)
R2 0.646
Hausman 0.9998
AR(2) 0.593
Sargan 0.115
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Source: Results of STATA software
Book value per share represents for total amount of
equity of the shareholders has positive impacts on stock
price. Once the equity is increase, it will strengthen this
internal source and promote production and business
activities of companies listed in Stock market. This
research has similar result with research conducted by
Irfan and Nisha (2002) and Khan & et al (2011).
The net income (EPS) also has positive impact on MPS.
It can be seen that if net income increases, it will
raise stock price accordingly. Net income is also a signal
for good operation in enterprises and it will create trust
which attracts more investment from investors. Thí
research has same points with Shank (2016). [8]
DPS reflecting Dividend per share also has a positive
effect on MPS. The bigger the dividend per share is, the
more profitability inverstors will gain from stock
playing. Increasing the value of dividend per share will
encourage inverstors put more their money into market
price of share. This result is also same with the study of
Sharif & et al[1].
Dividend yield has negative on MPS. It refers that it is
mainly attributed to the dividend irrelevant hypothesis
and the notion among investors that dividend payments
are the outcome of the past performance of the firm
rather than a reflection of future performance. [1]
Firm Size also has positive impact on market price of
share. Enterprises enlarge their scale to bring more
profits. Expansion also attracts more investors to
participate into Stock market.
4. CONCLUSION
By panel-data regression analyzing, the authors found
out there is firms internal factors on market price of
share. Factors relating to the dividend payout ratio have
negative impacts on market price of share. Besides,
ROE, BV, EPS, DPS have positive impacts on it.
With this result, the author conducts useful documents,
which help investors to give correct decision in trading
shares to gain more profits. Moreover, companies listed
also use this result in adjusting dividend policy with the
aim to increase market price of share.
ACKNOWLEDGEMENTS
First of all, I would like to express my thanks to the
organizers of international conferences ICECH2016
who support us a lot in publishing our works. Finally,
we would also like to thank to all members of the
Quantitative Research Center who has distributed and
encouraged me in finishing this thesis in the best way.
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