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Volume :18 Issue : 71 1993      Add To Cart                                                                    Download

THE MAIN DETERMINANTS OF COMMERCIAL BANK’S STOCK PRICES IN SAUDI ARABIA -AN EMPIRICAL INVESTIGATION

Auther : By: Dr. Abdulgadir Mohammad Ahmed Abdulla

  

          The main objective of this study is to uncover the main determinants of stock prices of commercial banks in Saudi Arabia.  A regression model has been specified to test the relationship between share prices and a number of independent variables.  These variables include Earnings Per Share (EPS), dividends, liquidity, investment and lending expansion, financial leverage, share price market index and a dummy variable expressing foreign participation in the ownership of commercial bank stocks.  The empirical results of the model revealed that dividends per share and share price.  These results are consistent with the expectations of the model and have theoretical as well as practical explanation.  Higher dividends lead to the increase in demand for the stock and this will lead to the increase in the market price of the share.  As for the price markets index, the higher this indexes the higher the systematic risk of the stock, therefore the higher the expected returns from that stock.  The ration of investment to total deposits and foreign participation ratio of investment to total deposits and foreign participation in commercial bank’s stocks are negatively and significantly related to the share price.  The increase in investment ratio leads to the increase in business risk, hence lowering the demand for the stock and its market price.  The results of the study reveals high correlation between EPS and dividends and the model gives better results when dividends are used.

 

 

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