Empirical Study on the Relationship between Financial Performance and Stock Price of Listed Manufacturing and Plantation Companies in Sri Lanka

Abstract

Financial performance is the achievement which is accomplished by a company for a particular period. The financial performance of any organisation is a key factor for making sound decisions for stakeholders. The main goal of this study is to observe the real relationship between financial performance and stock price with reference to the listed manufacturing and plantation companies in Sri Lanka, because very few studies have been conducted in relation to these two sectors. The ratios of Earnings per Share and Return on Equity were employed for measuring the financial performance and the Average Share Price was employed for measuring the stock price of selected companies. Twenty nine listed manufacturing companies and 15 plantation companies were selected to analyse the data. The sectors were selected for the comparison purpose of this study. The quantitative approach predominantly guides this investigation. Also, the study mainly used secondary data by reviewing annual reports from 2011 to 2020. The descriptive statistics were used for analysing the behaviour of selected variables and the regression analysis was used to derive a conclusion regarding the research area of concern. As per the descriptive analysis, listed manufacturing companies have higher financial performance compared with listed plantation companies. According to the results of regression analysis, the financial performance significantly and positively influences the stock price of listed manufacturing and plantation companies in Sri Lanka. Hence, the companies can maintain their financial ratios favourably by increasing their stock price. Therefore, investors and other interested parties can make their sound investment decisions through the conclusion of this study.