The relationship between firm profitability and stock price: A case study of SET100 listed company in the stock exchange of Thailand during 2014 to 2016

Abstract

The main aim of this study is focused on the ability of the company’s financial performance in terms of profitability to predict the future stock return in terms of stock price. To verify the relationship between financial performance and market price of listed companies in the Stock Exchange of Thailand (SET), this study investigated the impact of financial indicators on their stock prices. To be exact, this study investigated the impact of Net Profit Margin (NPM), Price to Earnings Ratio (PE), Earnings per Share (EPS) and Price to Book Value Ratio (PBV) on the Market Price of listed companies in the SET 100 index from 2014 to 2016. This study also controlled for the effect of firm’s age, industry type, audit type and ownership status on market price of stock. A total of 62 companies fit the description as companies that were delisted from the index and companies that joined the index in between the year were removed from the sample size. The data were obtained from the SET, the companies’ financial reports and the companies’ websites. The data were then 2 analyzed using multiple linear regression analysis with the authorized IBM SPSS software application. The result showed that EPS, NPM, PBV and PE all have positive and significant relationship with the market price with the coefficient of variance (β) of 0.96 (p<.001), 0.14 (p<.001), 0.18 (p<.001), and 0.10 (p<.01) respectively. Among the four control variables, ownership status and industry type both have significant relationship with the market price while the firm age and audit type have no significant relationship with the market price.