Factors affecting share prices in banking sector of Pakistan: evidence from KSE 100 of Pakistan

Abstract

This study investigates the “Factors affecting the stock prices of commercial banks in Pakistan”, the stock prices of commercial banks firms in Pakistan can be affect by both internal and external factors. For this purpose, the commercial bank’s data is collected for the time period 2007 to 2015 in Pakistan. There is 12 commercial banks data in this research. The results show mixed results but mostly stock prices of commercial banks are positively related to external factors and internal factors but also have negatively related to some internal factor. From five internal factors, use as independent variable affecting stock prices, dividend per share, earning per share, price earnings ratio, book-to-market, and leverage ratio. The first three (Dividend, Earning per share, Price earnings ratio) have positive impact on stock prices whereas the book-to-market and leverage have negative relationship. The results show that the banks taking more leverage or having more book value face have less prices or decrease in prices of stock. Similarly, the external factor, gross domestic products, real rate of interest and from internal factors dividend per share and price earnings ratio have positive relationship with stock prices and show more significant impact in long run. The results conclude that stock prices of commercial bank in Pakistan are affected by internal as well as external factors.