Abstract:
Price of publicly trading share is determined by supply and demand in the share
market. If there is a high demand for a share due to favorable factors, the price would
increase. It is important to identify that factors which have significant effect on share
price. According to previous researchers; such factors that have effect on share price
could be either firm specific internal factors such as; retained earnings, dividend, size
of the firm etc. or external factors such as; interest rate, government regulations,
foreign exchange rate etc.
This study is an attempt to identify the effect of two internal factors: dividend
payment and retained earnings on share price. The study has been carried out for
period of 10 years (2008-2018) with a focus on 35 manufacturing companies listed
in Colombo Stock Exchange. The relationship between share price and two main
variables were examined by multiple regression model. The primary regression
model was expanded by adding control variables: firm size, earning per share (EPS)
and dividend yield.
The findings of this study shows that dividend payment and retained earnings have a
significant impact on share price. It also revealed that DPS and EPS are having a
significant positive relationship with share price while dividend yield and retained
earnings are having significant negative relationship with share price. Size of the firm
shows insignificant effect on share price
