Independent University, Bangladesh

Course Name: Business Research Methods

Course ID: BUS 485
Section: 04
Semester: Spring 2018

Submitted To
Dr. Samiul Parvez Ahmed
Assistant Professor
School of Business
Independent University, Bangladesh
Submitted By
Assignment on “Determinants of share price in textile industry in
Bangladesh”

Name ID
Md. Habibur Rahman 1421106
Md. Robin 1421487
Shariful Haque 1420462
Mostakim Zaman 1520472
Abu Mohammed Hanif 1531001
 LETTER OF TRANSMITTAL
02nd April, 2018
To
Dr. Samiul Parvez Ahmed
Assistant Professor
School of Business
Independent University, Bangladesh

Subject: Submission of Research Report.

Dear Sir,
It is a great pleasure to present the report titled determinants of share price in textile industry in
Bangladesh. This has been assigned to us as part of our course. We are very happy to submit this
report on the topic you provided us. During preparing this report we have gathered extended
knowledge on working procedure of identifying the relationship between dependent and
independent variables. This report is based on secondary data from company annual report.
We worked hard to prepare this report. We would be highly obliged if the content of the report
have been acceptable to you. We have tried our best to preparing the report.
We hope that the report will worthy of your consideration. If there is any clarification required
we would be glad to provide them as best as we can.

Sincerely yours,

i
 ACKNOWLEDGEMENT

Apart from the effort of the team members, the success of every project depends on the
encouragement and guidelines of many others. We’d like to take this opportunity to express our
gratitude to the people who have been gratitude to the people who have been instrumental in the
successful completion of this research project.

We would like to show our greatest appreciation to our honorable faculty Dr. Samiul Parvez
Ahmed. We feel motivated and encouraged by his enthusiasm and direct guidelines while doing
the course work. Materializing this project would have been very difficult without his guidelines
and encouragement.

The guidance and support received from all the people who contributed to this project was vital
for the completion of the project. The team is grateful for all the support and guidance received

ii
 Table of Contents
Introduction .................................................................................................................................................. 5
Problem Statement ....................................................................................................................................... 6
Problems surrounding Textile sector ........................................................................................................ 6
The case of raw materials and unskilled workers ..................................................................................... 6
Improper working environment and working hours ................................................................................ 6
Gendered division of labor and wages ..................................................................................................... 6
Literature Review .......................................................................................................................................... 7
Dividend .................................................................................................................................................... 7
Bird‐in‐hand theory................................................................................................................................... 8
Signalling hypothesis................................................................................................................................. 8
Size of the firm (Total Asset) ..................................................................................................................... 9
Relationship of Share Price with Firm Sizes ............................................................................................ 11
Earnings per Share .................................................................................................................................. 11
Return on Asset....................................................................................................................................... 14
Price Earnings Ratio ................................................................................................................................ 16
Methodology............................................................................................................................................... 18
Research Design ...................................................................................................................................... 18
The Degree of Research Question Crystallized ....................................................................................... 18
Type of Study .......................................................................................................................................... 18
Method of Data Collection...................................................................................................................... 18
Purpose of the Study............................................................................................................................... 18
Topical Scope .......................................................................................................................................... 19
The Research Environment ..................................................................................................................... 19
Objectives ............................................................................................................................................... 19
Conceptual Framework ............................................................................................................................... 19
Research Question .................................................................................................................................. 21
Hypothesis................................................................................................................................................... 21
Dividend .................................................................................................................................................. 21
Return on assets ..................................................................................................................................... 21
Size (TA)................................................................................................................................................... 21
Earnings per share .................................................................................................................................. 22
Price earnings ratio ................................................................................................................................. 22

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 Sampling.................................................................................................................................................. 22
Method of Data Analysis ............................................................................................................................. 22
Descriptive Analysiss ............................................................................................................................... 22
Share price .............................................................................................................................................. 23
Divident Per Share .................................................................................................................................. 23
Earning Per Share .................................................................................................................................... 23
Price Earning Ratio .................................................................................................................................. 24
Return on Assets ..................................................................................................................................... 24
Total Assets (LN) ..................................................................................................................................... 24
Correlation .............................................................................................................................................. 24
Regression analysis ................................................................................................................................. 25
Analysis of coefficient ............................................................................................................................. 26
Hypothesis test....................................................................................................................................... 27
Coefficient of determination .................................................................................................................. 28
Summary of all analysis............................................................................................................................... 28
Conclusion ................................................................................................................................................... 29
Bibliography .............................................................................................................................................. 30

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 Introduction

The Textile sector involving the clothing sector in it plays a key role in the economy’s growth
and progress, responsible for more than or at least equal to 65% of the country’s industrial
employment and 81% of the export earnings. Around 5 million people or even more are
employed in this industry of which around 80% are women or even beyond. The textile sector
was originally an import-substitution industry until Bangladesh saw the light of liberty and so it
started its journey of exporting ready-made garments (RMG) involving woven, knitted and
sweater garments in 1978, the growth of which started during the next two and a half decades
from US$3.5 million in 1981 to US$10.7 billion in FY 2007. With that being said, the textile
sector of Bangladesh has expanded dramatically over the last three decades putting the jute
industry in the second place in terms of domination over the industrial sector of the country.
Bangladesh, not being developed either in terms of nation or industry have at least touched the
threshold of enrichment in the textile industry lately where it is actually a promising step towards
industrialization as it now dominates the modern economy in terms of export earnings, secondary
impact and employment generated, begetting employment opportunities for millions of people
especially innumerable uneducated women of the country.
A company's earnings and the dividend that it pays can be affected by different a factor which is
basically reflected by share price. For example, the impact of rising oil price in airlines or the
impact of a new competitor entering the market etc. So share price is the dependent variable that
we have been asked to work with along with the respective independent variables of dividend,
return on asset, total asset, and price to earnings ratio and etc.

For the development of this report various articles/journals were gone through to extract the
relationship of each independent variable with the dependent variable so that diverse dynamics
could be understood. Moreover we did regression analysis under which P-Test, F-Test and R-
square test were conducted; correlation analysis and descriptive analysis as well were done under
the authority of the E-views software.

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 Problem Statement
Problems surrounding Textile sector
In Bangladesh, the integral source of information along with a key export division lies within the
textile industry which has been there for around 20 to 25 years now. EPZ is not eligible for
national labor laws, leaving BEPZA in full control over work conditions, wages and benefits.
Textile industry in Bangladesh, in itself provide employment to more than or equal to 40% of
industrial workers. However without proper or solid laws being present, the workers are coming
up with their own set of principles and wants and trying to push them in to the factories, thus
resulting in conflicts. So some of the problems that need to be addressed in this context are:

The case of raw materials and unskilled workers

For elements like cotton, thread, color Bangladesh imports raw materials. So the dependence on
raw materials hinders the progress of the textile industry. Interestingly, low quality materials are
usually supplied by the foreign suppliers which ultimately result in low quality products.
Unfortunately majority of the workers in the factories are uneducated as well as unskilled which
slows down the development too.

Improper working environment and working hours

The workers being poor and not aware of technical internal information are as usual taken
advantage of, by being forced to work in unhealthy, unhygienic and unsafe conditions often
overcrowded with workers beyond capacity of the factory floor and improper ventilation. So
filthy rooms and improper ventilation are generally the characteristics of majority of the
factories. The owners naturally being profit driven at a point stop caring about the bottom level
people leaving out their concern. On the other hand, although the wages are low, the working
hours are very long. The Factory Act allows and permits women to work for and towards
delivery deadlines whereas in reality, women are actually compelled to work until or even after 8
o’clock.

Gendered division of labor and wages

In the garment industry in Bangladesh, tasks are allocated largely on the basis of gender. Women
are usually made to work in less dominant sections such cutting. Sewing etc whereas the males
are made to work in sections like ironing, machine handling and etc. Women work mainly as
helpers and less frequently, as line supervisors and quality controllers with no female cutting
masters existing in the context with women being discriminated against the access to higher-paid
white collar and management positions whereas Men dominate the administrative and
management level jobs. Bangladesh government sets the minimum wages for various categories
of workers. Apprentices are helpers who have been working in the garment industry for less than
three months. When the three months finish, apprentices are appointed as helpers. So the female

6
helpers are usually discriminated in terms of wages levels which are fixed far below the
minimum wage rates

Literature Review

Dividend
Dividend policy and share price volatility
Dividend policy once referred to a corporation's own choice to whether pay its shareholders cash
dividend or retain its earnings. 12 months, 6 months or 4 months, it regarded the frequency of the
relevant payments and in what amount the company should, if it decides to do so, pay.

Dividend policy, in today's corporations, fell beyond the boundaries to highlight such issues as to
whether distribute cash via share repurchase, or through specially designated rather than regular
dividends. Other issues relate to balancing the preferences of highly taxed and comparatively
“untaxed” investors. However, the questions asked by the managers of 1950’s are still being
asked by the managers today. Dividend policy of companies has thus been acommon research
subject for more than 50 years now. (Lintner, 1956; Gordon and Shapiro, 1956; Modigilani,
1982)

Dividend policy relates to the management decision on how much of the company’s earnings are
to be paid out to shareholders as dividends/retaining for reinvestment in new avenues. Generally,
there are 3 point of views regarding the ‘dividend policy and stock value’ relationship
(Damodaran, 2010). The dividend irrelevance school of thought tells us that the dividend policy
has little contribution on stock price; therefore the value of the firm in a perfect capital market
will not be affected (Miller and Modigliani, 1961; Black and Scholes, 1974). The second school
of thought admits that dividends are bad for the average stockholder because of the tax
disadvantage which will result in lower value (Brennan, 1970; Litzenberger and Ramaswamy
1979). Finally, the bird-in-the-hand school of thought argue that dividends can be and actually
favorable and will lead to an increase in the wealth of the shareholders through its influence on
stock price (Harkavy, 1953; Gordon, 1963; Pettit, 1972; Ball et al., 1979; Woolridge, 1983).
Besides these three theories, the signalling theory describes how the increments of dividend
payout convey good signals to the markets related to company’s future earnings (Miller and
Rock,1985) which further translates into upward movements of the share price (vice versa). In
the context of the agency cost theory, dividend payments minimize agency costs between the
shareholders and managers (Moh’d et al., 1995). Dividend payment displays the manager’s
commitment in maximizing the shareholder’s investment fund without having to invest the funds
into risky and/or unprofitable projects.

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Bird‐in‐hand theory

Al‐Malkawi (2007) tells us that in the world of uncertainty and imbalance among information,
dividends are always valued differently from retained earnings (capital gains): “A bird in hand
(dividend) is worth more than two in the bush (capital gains)”. stressing the future cash flow
uncertainty with investors often tending to prefer dividends to retained earnings. It has been
supported by Gordon and Shapiro (1956), Lintner (1962) and Walter (1963). The necessary
assumptions tend to be - the investors have an imperfect information regarding the profitability
of firms with cash dividends being taxed at a higher rate at the point when the capital gain is
realized on a share sale and the dividends ultimately functioning as a signal of expected cash
flows. So the management continue to pay dividends to send a positive signal about the firm's
future prospects regardless the tax disadvantage of paying dividends. The cost of the requisite
signal is that cash dividends are usually taxed higher than capital gains. Some investors would
have capital gains to cut down on tax whereas the others might prefer dividends because of the
possibility of immediate cash in hand.

Signalling hypothesis

The fact that Miller and Modigliani (1961) assumed that investors and management have perfect
knowledge about a firm has been countered by many researchers, since management body who
looks after the firm tends to have much more precise and timely information about the firm
compared to the outside investors creating a gap between the managers and the investors. In
order to extensively minimize this gap, management uses dividends as a tool to pass confidential
information to shareholders (Al‐Malkawi, 2007). Petit (1972) discovered that the dividends that
are paid, seemed to carry necessary information about the prospects of firms which are evident
by the movement of share price. Naturally an increase in dividends may be interpreted as good
news as well as brighter prospects and vice versa. But Lintner (1956) noticed that the
management body is not willing to subside dividends even when there is the need to do so, and
only surge dividends when it is believed that earnings have permanently increased. The
relationship among ordinary stock price volatility and dividend policy has been figured out using
multiple least square regressions. The developed regression model fundamentally relates price
volatility with the two main measures of dividend policy which are the dividend yield and the
dividend payout ratio. In accordance with the recommendations by Baskin (1989), a number of
control variables were included for certain factors that affect both dividend policy and stock
price volatility the reflection of which are asset growth, earnings volatility and firm size. The
model was evaluated annually over the ten‐year period to measure the periodic effect of dividend
policy on stock price volatility. Multiple regression analysis was used to describe these
relationships and a correlation analysis was done amongst the variables.

8
Miller and Modigliani (1961) proposed that dividend policy is irrelevant to the shareholder and
when all the aspects of investment policy are fixed the stockholder wealth is static as well as the
fairly priced stocks sales are what drives an increase in the current payout.

The idea to it is that there is a hundred per cent payout opportunity by management in every
period. Other assumptions include –

The existence of perfect capital markets meaning that there is no tax nor transactional cost and
the market price will not be set by individual single buyer/seller resulting in free and costless to
market information. The investors, being rational, value securities based on investors’ future
cash flow. Managers are the best agents of shareholders wih the certainty regarding the
investment policy of the firm having full knowledge of future cash flows.

Size of the firm (Total Asset)

(Staffan Canbäck) mention that there are lots of ways to measure the size of a firm. Size is
mainly defined as annual revenue, especially by the business press. However, the reason for this
measurement is basically meaningless because it does not say anything about the depth of the
underlying activity. According to this measure, the world’s four largest companies were Japanese
trading houses in 1994 (Fortune 1995b). They had between 7,000 and 80,000 employees, but
almost no vertical integration. A good measurement value of size added, which includes more or
less revenue less exotic purchasing products and services. This metric gives a particular measure
of activity, but this is generally not universally available for individual organization. (Canbäck,S;
Samouel, P and Price,D, 2006)

According to Krishna B. Kumar the question is whether we should measure the firm size in
terms of its output, its value added, or the number of its employees. Value added is clearly
recommended to output, because the complication of the organization has to do with the value of
its contribution not with the value of the output sold. The reports of Enterprises in Europe that
value added per employee is fairly stable across different size-classes. Its measure the firm size
based on the number of employees is likely to be very similar to a measure based on value-
added. However, coordination costs, which are present both in the technological and the
organizational theories of the firms, are in terms of number of employees, not their productivity.
Thus, a measure based on the number of employees is preferable. (Kumar, k.; Rajan, R.&
Zingales, L., 1999)
Canback et. al(2006) referred to Grossman and Hart . He mentions that assets can define size.
“As with revenue, this measure may not reflect underlying activity; but for manufacturing firms,
asset–to–value-added ratios are fairly homogeneous. Asset data for individual firms are usually
available back to the 1890s and are therefore a practical measure in longitudinal studies”.
(Kaen & Baumann, 2003) state that the firm size can be done in measurement various method
such as sales, employees, assets or value add features. Generally those who use the technological

9
theory the scale above is based on economy from capital inputs used only sales figures or assets
to for the measurement purpose. It has been found that measure for sales and assets size are not
particularly effective methods of measurement for size; the main problem is how the
organization, transactions and the range of costs impact the profits. The cost is usually related to
the basis way the organization is regulated by a chain of command more than just the value of
physical assets. (Zadeh,F,Z and Eskandar, A, 2012) Measurement of the employee’s enrolment
and value added measurement are a better choice in measuring the size of the firm in
organizational theories rather than sales or assets.
Accounting to Zadeh and Eskandari “There are some studies that investigated the element of size
and risk disclosure level of companies. Linsley and Shrives (2006) found that there was no
coefficient relation between firm size as measured by TA and the level of risk disclosure for a
sample of 79 companies from the UK. Kajüter (2006) found a positive effect between firm size
as measured by TA and the level of risk disclosure for samples from Germany. Mohobbot (2005)
discovered a positive effect between firm size as measured by TA and the level of risk disclosure
among 90 non-financial Japanese companies. Elzahar & Hussainey (2012) found the positive
relation between firm size and risk disclosure in UK Interim reports sample of 72 UK
companies”. ( Zadeh, F, O and Eskandari, A, 2012)
Marsh mentions that capital structure is another important determinant of firm size. Large
companies have a tendency to choose long-term debt and small companies tend to rely on short-
term debt (Marsh, 1982). A firm size compromise for debt plays an important vital role in the
negotiation. Large firms can be negotiated because of long-term debt; they may have impact on
the creditors. Also large firms are more diversified than small firms and have a more stable cash
flow. However, previous studies relate to structure of the capital and given mixed results. Rajan
and Zingales (1995) disagree that the equilibrium leverage size effect is more ambiguous. Large
companies are more diversified and often fail less often, so size may be an inverse proxy for the
probability of bankruptcy. Barclay and Smith (1995) advice that a firm with high intangible
asset, a high end debt loan will be borrowed debt and a firm with high tangible assets can use the
assets as guarantee hence borrow debt at cheaper cost. ( Oppong-Boakye, P, K, Appiah, K, O and
Afolabi, J, K, 2013)
Symeonidis said that a significant part of literature has focused on the relationship between
innovation and firm size. The most important estimated is that firm shape has a positive
correlation with innovation [Symeonidis, 1996]. Empirically speaking, Schumpeter [1942] has
found that large firms, which work in a concentrated market, are the essential technological
improvements are essential engines. As the innovation system has been used variety of measures
of literature, this part of our review will be divided according to the categorization of innovation
dimensions. Initial, we consider search new research and innovation inputs such as R&D. We
then consider the output of innovation, such as the number of important innovations and the
number of patents. ( Alsharka, Z, 2015)

10
Relationship of Share Price with Firm Sizes
A firm's size and its relative price ratio are clearly correlated because each is an increasing
function of price. Price itself is not as highly correlated with size as is price ratio because both
price ratio and size are unaffected by stock splits. Thus, the relative price ratio should have more
explanatory power than share price in reducing the firm size effect. (. Zivney, L,Tand Thompson,
D.J, 1987)
Zivney et. al(1987) mention that “This paper showsthat a stock's relative price ratio, the ratio of
the current price to the average of the highest and lowest prices over some holding period, is a
better predictor offuture stock returns than firm size. The relative price ratio effect has a similar
seasonality to that observed in the firm size effect. Part of the firm size effect is related to
unrealistic assumptions about investors' investment horizons. The usual daily or monthly
portfolio rebalancing assumption is only correct for investors with one day or one month holding
periods. While there may be a significant number of such investors, such as specialists, they are
not motivated by tax timing considerations and are not likely to be the marginal investors at year
end. If investors have horizons of about one year, perhaps related to their tax or calendar year,
then a one-year buy-and-hold strategy would be appropriate. Over half of the observed firm size
effect is eliminated by using one-year buy-and-hold portfolios instead of daily rebalanced
portfolios. Most of the remaining size effect is eliminated by including the relative price ratio as
a predictor. The price ratio effect is consistent with tax motivated selling hypotheses, in that
stocks with extreme price ratios are more likely to have gains or losses to be realized. The
relative price ratio is the first factor isolated, which reliably predicts which stocks will exhibit the
January seasonality, as well as subsuming the size effect in the same sense that Reinganum
(1981) finds that the size effect subsumed the PE anomaly. References Basu, S. (1983) "The
Relationshi” ( Zivney. L. T and Thompson. D. J, 1987)

Earnings per Share

A number of articles have established a link between earnings and dividends. For example,
Campbell and Shiller (1988) establish a link between the moving average of a firm's earnings
and the present value of all future dividends. McCann and Olson (1994) support the paying of
dividends regardless of the perfection of the capital markets. The existence of concurrent
changes in earnings and dividends has been discussed in Benartzi et al. (1997). They find that
dividends convey information on current and past earnings; therefore, the reverse may be true
also.
The relationship between a company's earnings and its stock price can be highly complicated.
High benefits don't really mean a high share price, and enormous misfortunes don't generally
prompt a low share price. Obviously, without income it is hard for organizations to remain in
business for long. You could state that two of the main considerations that impact stock cost are
present income and guarantee of future profit. The first step in understanding the relationship
between the price of a stock and its earnings is to look at its earnings per share, or EPS. The EPS

11
tells us how much income the company generated for each share of stock. For example -- and
let's assume the company pays no dividends -- if a company has $20,000 in earnings, and 2,000
shares, the EPS would be $20,000 divided by 2,000, or $20. You can find a company's quarterly
and yearly EPS by looking at the investor relations page on its website or typing in its ticker
symbol on most financial websites.
On the off chance that an organization doesn't create steady profit development or lower its P/E
proportion after some time, investors may choose to sell the stock, sending its value lower. Fairly
new or developing organizations that have amazingly high P/E proportions or lose cash may
have a high stock cost because of anticipated future development. In any case, inevitably an
absence of income over a drawn out stretch of time will drive a stock price down and the
organization would be bound to face bankruptcy.
One way earnings impact the price of the stock is the means by which well an organization
performs against expectations. Before most organizations report their quarterly budgetary
outcomes, financial analysts foresee the EPS for the quarter based on the organization's direction
and different components. On the off chance that an organization beats the anticipated income,
its stock cost is bound to go up. However, in the event that an organization neglects to achieve
the anticipated profit, its stock cost will undoubtedly decrease. An organization could have an
exceptionally profitable quarter, however in the event that it makes not exactly was anticipated
the share pricet is probably going to fall. Also, if an organization loses cash - yet the misfortunes
are lower than anticipated - the stock cost is probably going to go up.
Fama and French (2001) demonstrate that benefit is one trademark that influences an
association's choice to pay money profits. Dish (2001) noticed the significance of changes in
lasting income to the investigation of profits by demonstrating that supervisors change profits
relatively bigger than the adjustment in perpetual income. In an examination utilizing chiefs'
reactions, the most essential reasons for profit choices for firms recorded on both NASDAQ and
the New York Stock Trade was observed to be the example of past profits, the dependability of
income, and the level of present and expected future profit (Dough puncher, Veit, and Powell
2001). Nissim and Ziv (2001) report profit changes are emphatically identified with income
changes in every one of two years after the profit change demonstrating that normal future profit
have extraordinary significance for current profits. In this light, Arnott and Asness (2003) offer
help for the flagging theory: higher profit payout gauges future total income development; and
moderately low current profit payouts (contrasted with verifiable rates) don't anticipate great
profit ahead. Different creators give confirmation of a connection amongst profit and profits.
Koch and Sun (2004) demonstrate that the market response to profit changes is a deferred
response to past changes in income. Zhou and Ruland (2006) examine that high profit payout
organizations tend to encounter solid, not frail, future income. Likewise, Bali et al. (2008) locate
a solid positive connection amongst income and expected returns, which incorporates profits.
Pan (2001) noted the importance of changes in permanent earnings to the study of dividends by
showing that managers change dividends proportionally larger than the change in permanent
earnings. In a study using managers' responses, the most important causes of dividend decisions
for firms listed on both NASDAQ and the New York Stock Exchange was found to be the

12
pattern of past dividends, the stability of earnings, and the level of current and expected future
earnings (Baker, Veit, and Powell 2001). Nissim and Ziv (2001) report dividend changes are
positively related to earnings changes in each of two years after the dividend change showing
that expected future earnings have great relevance for current dividends. In this light, Arnott and
Asness (2003) provide support for the signaling hypothesis: higher dividend payout forecasts
future aggregate earnings growth; and relatively low current dividend payouts (compared to
historical rates) do not predict good earnings ahead. Other authors provide evidence of a relation
between earnings and dividends. Koch and Sun (2004) show that the market reaction to dividend
changes is a delayed reaction to previous changes in earnings. Zhou and Ruland (2006) discuss
that high dividend payout companies tend to experience strong, not weak, future earnings. Also,
Bali et al. (2008) find a strong positive relationship between earnings and expected returns,
which includes dividends.
Companies that declared cash dividends, aside from payments made as a part of liquidations,
acquisitions or reorganizations, during the duration of January 1, 2000 and March 31, 2006 had
been diagnosed in CRSP. It was assumed that dividends declarations made over the past 15 days
of 1 / 4 and anytime at some stage in the subsequent area prior to the final 15 days were
dependent on the zone of hobby. For instance, if the primary region runs January 1‐March 31,
dividends declared among March 16 and June 15 might be assumed to be dependent on
economic interest during the primary area.
Cambell and Shiller (1988) establish a link between the moving average of a firm's earnings and
the present value of all future dividends. This predictive ability may hold true for earnings per
share and dividends per share, as well.

A few industries were located to have month-to-month dividend payments or multiple sorts of
cash dividends as coded by means of CRSP. While this was the case, a couple of dividend
amounts were summed and pronounced as a single statement for the quarter. With the intention
to use a panel records technique, time identifications primarily based on the calendar zone
assigned. Companies with economic quarters ending between January 1, 2000 and March 31,
2000 are categorized as term 0. All financial year and area‐ends were retained within the pattern.
Quarterly beta became calculated for monetary quarters the use of each day expenses and NYSE
equal‐weighted marketplace index records from CRSP. Quarterly stability sheet and income
statement values and share facts were accrued from Composter. Observations with lacking
stability sheet or income declaration information were deleted. Missing data for excessive and
occasional market rate had been hand collected in which viable; in any other case, the
observations were deleted. Similarly, corporations with the term “believe” in the business
enterprise call were deleted.
Articles since 1985 provided the relevant literature review. Miller and Rock (1985) find earnings
determine firm value with asymmetric information. This would argue that earnings per share
might be a good predictor of dividends per share with minimal time lags. This provides a base
upon which to build the literature review.

13
Utilizing quarterly information from 2000 to 2006 for profit paying organizations from CRSP
and Composter information of 1,902 firms, the investigation observes income per offer to be a
superior indicator for profits per share than is profit per share, in any event as far as chose
demonstrate fit criteria. This is the situation with or without control factors of aggregate
resources, obligation proportion, and market to book esteem proportion, liquidity measure of
current proportion, quarterly beta, and final quarter pointer. These control factors have been
appeared to have a critical relationship to profits in earlier examinations.

Return on Asset
It is widely known that money related ratios are the most established straightforward and useful
financial planning and analyzing tool. Financial ratios were used by internal and external
financial data users for making budgeting and influencing their monetary choices; economic
decisions; including investing, and performance evaluation decisions. They showed up in the mid
of the nineteenth century, and it were constantly utilized by bookkeepers and monetary experts.
Numerous money related and bookkeeping models were created amid past decades. Nonetheless,
the financial ratios still kept its established and principal influence either as a major aspect of
these budgetary and bookkeeping models or as another critical steady investigation with it. As a
result of the demonstrated energy of the proportion examination in the down to earth money
related and arranging investigation, this examination will investigate the impact and influence for
some key proportions.
ROA is one of popular profitability measures, which is a ratio between earnings after tax (EAT)
and total assets: ROA= (EAT/total assets). One might use different earnings such as income
before taxes or operating income instead of EAT being dependent on the types of profitability
measures used. The usage of operating income would inherently show the profitability that
stresses on the operations of a company. A company's income statement holds the information of
earnings that are available. Total assets, which are entries in firms' balance sheets, consist of
current assets, fixed assets, and other assets as well as noncurrent assets. Current assets consists
of cash and cash equivalent, inventory, accounts receivable, and other current assets. Current
assets tend to be converted to cash, bartered, exchanged and expensed for general business
purposes. Fixed assets are actually the investments on buildings, equipments, furniture,
machineries and leasehold improvements so unlike current assets, fixed assets are generally not
transformed to cash for routine business operations annually yet they are subject to amortization
and depreciation. Prepaid expenses, patents, and computer programs are examples of other assets
that are not included in the current or fixed asset section. The disadvantage of total assets in the
balance sheet is that it cannot take into account certain assets such as human capital, brand
values, and relationships, which tend to be rather subjective or are not easily measurable in
monetary units.
M. T. Bosch-Badia (June 2012) performed a study that determined "a functional relationship
between ROA (return on operating assets) and the main productivity indicators at a company
level: total factor productivity (TFP) and labor productivity. Both productivity indicators,
together with price change of outputs and inputs, are the drivers that determine the value of

14
ROA, as the functional relationship we obtain proves. This relationship can be regarded as an
extension of the DuPont method that expresses ROA as the product of operating margin per asset
turnover. The author created a model that ROA, as the dependent variable, can be expressed as a
function between productivity and price change as independent variables. (Majid Kabajeh,A,M
AL Nu’aimat, M,A and Dahmash,F,N, 2012)
Patricia Fairfield and Teri Lombardi Yohn (2002) have made a study of the return on assets in
the context of making predictions. They demonstrated that "disaggregating return on assets into
asset turnover and profit margin does not provide incremental information for forecasting the
change in return on assets one year ahead, but that disaggregating the change in return on assets
into the change in asset turnover and the change in profit margin is useful in forecasting the
change in return on assets one year ahead”. (Fairfield, P, M, Whisenant, S and Yohn, T, L, 2003)
Existing studies in variable selection for DEA studies are similar to variable reduction in
statistical analyses. Based on the increase or decrease of efficiency scores, Wagner and
Shimshak (2007) stepwise approach by adding and removing a variable in the DEA model was
suggested. Similarly, Fanchon (2003) and López and DuIá (2008) variable selection methods for
DEA studies which reveals that quite the rich sets of variables are readily available, was
characterized. Furthermore Casu et al. (2005) A unique method that used a group decision
support system along with an expert panel to choose relative and relevant variables for DEA
study although we failed to find literature for selecting variables using a normative approach.
Regardless the relevance for the study or not , Feroz et al. (2003) it was briefly stated that the
elements of a profitability measure, return on equity, can be utilized for DEA studies for
analyzing the comparative financial performance of companies. It is further made transparent
that the elements of ROA can be used for selecting variables for DEA studies. To start with,
output variables could be picked from various kinds of earnings and revenues. As we all know,
revenues are generated by the diverse inputs of firms which basically are of two types: revenues
from operating activities and revenues from non‐operating activities. Operating revenues can be
further broken down into different categories for example, revenues from domestic operations as
well as international operations. Hospitals generally have revenues generated from in-patient and
out-patient services. Hotels earn revenues produced by rooms, food and beverage as well as other
sources. We can find valuable Intel which is not made apparent in income statements or balance
sheets when we go through the details of annual reports. For example, non‐financial variables
including number of branches, number of memberships, and square footages are frequently
available. On the other hand, input variables could be taken from resources such as assets and
expenses that are used by companies. Three basic types of assets are to be seen in balance sheets
which are current, fixed, and other assets of which an individual may as well select all three of
them. Current assets can be further broken down into various entries. Among the entries that are
broken down, cash and cash equivalents, accounts receivables and merchandise inventory are
critical to the productivity of firms' working capital. Fixed assets, on the other hand, include
plants, warehouses, offices, machines, etc. Fixed asset turns are very significant as well as
critical to the operating efficiency of firms. Because firms use intangible assets more and more
such as computer software, patents, certain rights, etc. “other assets” might just be as important

15
as the two types of assets mentioned above with respect to an individual firm's productivity in
some industries.
Another study for (AL Thaher, 2003) examined the impact of dividend policy on market share
prices. The study was applied on a sample of (7) Jordanian commercial banks listed in Amman
Security Exchange during the period between the year of 1996 to 2000. The results showed a
significant positive relationship between the market price per share with dividends and this result
varies between the tested banks.
The accumulated return on assets of a bank is the result of company’s performance and activities
regarding their use. The appropriate measurement of applied earnings and assets of bank defines
the credit on return on assets which can as well be calculated by the DuPont system. The use of
company leverage has an impact on the company performance, the rate of which is measured
according to the asset turnover ratio and net profit margin ratio. The performance of the Nigerian
banking industry Return on assets, an indicator of bank earnings is based upon or is dependent
on the total assets of the bank (Mark, 2001). He also mentions return on assets gives us an idea
about how efficient the management is in applying the assets in order to generate profit
(productive assets).
Good company's performance reflects on the better return on assets, because of the greater rate of
return on investment which in turn reflects upon the profitability of a company's ability to
generate earnings for certain periods. It is pretty apparent on the fact that a higher proportion of
the return on assets is better to financial specialists since it demonstrates that the bank is
naturally successful in dealing with its advantages to deliver standard measures of net wages.
(Riyanto, 2001:267; Harahap , 2002: 304).
(AL Khalayleh, 2001) tested the relationship between accounting performance indicators and
market performance indicators for a sample of (40) Jordanian public companies listed in Amman
Security Exchange during the period between the year of 1984 to 1996. The results showed a
significant positive relationship between the market price per share with the ratios of return on
assets and return on assets. ( Majid Kabajeh, M, A, AL Nu’aimat, M, A and Dahmash, F, N,
2012)
(Abu Hasheesh, 2003) examined the role of published accounting Information in predicting share
prices. The study used a sample of 40 Jordanian public companies listed in Amman Security
Exchange for the year 2003. The results showed that there is a positive significant positive
relationship between the market price per share with the ratios of net profits to equity, net profits
to total assets, and dividends to net profits as a total. The results showed also a significant
negative relationship between the market price per share, with the ratios of fixed assets to total
assets, the creditors total to total of cash sources, and the wages ratio to total of expenses ratio.
(Kabajeh, A, M, AL Nu’aimat, M, A and Dahmash, F, N, 2012)

Price Earnings Ratio

The price earnings ratio is normally considered as a popular multiple used to value equity in
practice. Although this is supported by evidence from practice, the utilization of the P/E ratio has

16
not yet been solidified by evidence from research. This article enquires the accuracy and fairness
of the 5 most popular multiples, including P/E ratio, in valuing the equity of South African
companies listed on the JSE Securities Exchange. Interestingly, research results revealed that the
P/E ratio does not unfortunately deliver the most accurate valuations across all sectors and
honestly different multiples ought to be used for different sectors. There is an opportunity to
enhance the accuracy of equity valuations based on multiples by employing multiples other than
the P/E ratio. (Nel, W, S, 2009)

It is an examination of the assertion that the financial market pays fixed P/E multiples and that
the acknowledgement of goodwill and amortization depresses earnings and stock prices, placing
the U.S. firms at a competitive disadvantage in the international merger and acquisition avenue.
Contrary to common belief, study suggests that the price/earnings ratio expands by a sufficient
amount in response to amortization, making amortization irrelevant to stock valuation. ( Xu, L
and Ca, Fi , 2006)
Summarizes previous valuation models based on accounting information, extends the basic
model to include dividends and retained earnings, and develops hypotheses on the relationship
between share prices, dividends and earnings for firms with different investment opportunity set
(IOS) levels. Tests them using 1992‐1998 data on a sample of US multinationals and shows that
the share prices of firms with high IOS levels are related to retained earnings and less strongly to
dividends; while for low IOS firms dividends are more relevant than earnings. ( Riahi-Belkaou,
A and Picur,R, 2001)

A big chunk of empirical studies enquire the determinants of (P/E) ratio by focusing on the basic
factors. On the contrary, there has been concern that stock valuation is as well driven by investor
sentiment. The research also examines the determinants of P/E ratio by applying latent variable
models with investor sentiment as a latent variable and various basic factors as control variables.
Investor sentiment is proxied by trading volume, advance-decline ratio and price volatility. Using
annual data of the US industries over the period of 1998-2014, the current research leads to new
evidence that the investor sentiment significantly affects the P/E ratio. The framework of the
current work is distinguished from the conventional analysis in which the P/E ratio is regressed
against control variables and proxies for sentiment, thus falling into the trap of implicitly
presupposing that proxies are perfect measures of investor sentiment. As all proxies may have
measurement errors to the true but unobservable investor sentiment, the current paper uses latent
variable models to shed new light on the influence of investor sentiment on the P/E ratio. (
Jitmaneeroj, , 2017)

17
Investment in the long run is fundamentally based upon the time-tested theory that over the years
there is a strong persistent upward trend in share prices. This particular trend takes us back to the
growth of American industry as well as of corporations that capitalize back a large chunk of their
earnings for successful expansion. For an example: the average of industrial stock prices of Dow
Jones bear a relationship to earnings of and for the companies inclusive in the average relevant to
the GNP.

Methodology
Research Design
The research approach/design provides the in-depth inlet regarding the methodology and
background of the total research. The research design tells us whether this research on the
variables is the exploratory, descriptive, or causal.

The Degree of Research Question Crystallized

The report focuses on using a formal study because it determines at improving current research
article with clear direction, clear hypothesis, clear idea, clear definite research question as well as
specific objective.

Type of Study
Because the study involves collection, measurement, and analysis of data, it is the plan and
structure of investigation to obtain answers to the research questions which basically provides
the objective, hypothesis, and the analysis of data. It will also carry out the conceptual frame
work and the sampling portion.

Method of Data Collection

We have used random sampling method to collect data by accumulating the annual reports of 5
different textile based companies. We have collected the requisite information from the
secondary source which is basically the library of our university. This research was more or less
based on the annual reports and financial conditions of the companies.

Purpose of the Study

The purpose of the study is fundamentally to find the results as well as the impacts the
independent variables have on the dependent variable. It’s a causal explanatory study where it
basically explains the relationship among variables.

18
Topical Scope
The kind of study that has been done here is better known as the statistical study because we
have dealt with the financial values of the textile industry and that we have worked with the
changes as well as the manipulations of the variables of five different companies.

The Research Environment

The data that we have gathered has been accumulated from online. So the values of variables that
we have found out are the values that we put in the Eviews Software and derived certain results
from it.

Objectives
According to the research on textiles industry, the main objective is concerned with the
profitability of this industry with the five independent variables. The objective part plays a big
role when developing a project; it dictates and shows things that are needed to be done for the
smooth functioning of any project. The objectives are shown below:

 The purpose of this report is to understand the relation between the independent variables
and the factors included in the textiles industry of the country.

 This report will try to explore the different determinants such as Dividend Per Share,
Earnings Per Share, Return on Assets, Size (Total Assets), and Price Earnings Ratio.

 This study will help the concerned stakeholders to understand the factors that affect the
profitability of the textiles industries environment in Bangladesh.

 This report also tries to explain the influence the independent variables have on the
dependent variable which is the “Market Share Price”. The objective of the research has
shown each of the unique possible scenarios of the independent variables on the
dependent variable the “Market Share Price”.
 Another objective of the report is creating a table using the “E-Views” software using the
Excel file as a source. The Excel file consists of all the 5 independent variables along
with the dependent variable. This software is used to better understand the correlation
between the different variables.

Conceptual Framework
The primary objective of this conceptual framework is to identify potential factors that affect the
market price of shares. The extant literature available strongly supports the movements of stock

19
price as a result of some firm’s specific factors. Dividend, Return on Asset, Size of the company,
Earnings per share and Price Earnings ratio are expected to have strong influence on market
price per share.

Independent Variables Dependent Variable

DIVIDEND

RETURN ON ASSET

SIZE (TOTAL ASSET) SHARE PRICE

EARNINGS PER SHARE

P/E RATIO

γ = α + β1X1+ β2X2 + β3X3 + β4X4 + β5X5 + ε

Where,
γ = Share Price (Dependent Variable)
α = Constant

20
β1, β 2, β 3, β 4, β5 = Co-efficient
X = Independent variables
X 1= Dividend
X 2 = Return On Asset
X 3 = Size (Total Asset)
X 4= Earnings Per Share
X 5 = Price Earnings Ratio
ε = Error

Research Question

1. Does dividend have any relationship with share price?

2. Does ROA have any relationship with share price?
3. Does total asset have any relationship with share price?
4. Does EPS have any relationship with share price?
5. Does P/E ratio have any relationship with share price?

Hypothesis
Dividend
H0: There is no significant relationship between Dividend and Share Price.
HA: There is a significant relationship between Dividend and Share Price.

Return on assets
H0: There is no significant relationship between Return on Asset and Share Price.
HA: There is a significant relationship between Return on Asset and Share Price.

Size (TA)
H0: There is no significant relationship between Total Asset and Share Price.
HA: There is a significant relationship between Total Asset and Share Price.

21
Earnings per share
H0: There is no significant relationship between Earnings per Share and Share Price.
HA: There is a significant relationship between Earnings per Share and Share Price.

Price earnings ratio

H0: There is no significant relationship between Price Earnings Ratio and Share Price.
HA: There is a significant relationship between Price Earnings Ratio and Share Price.

Sampling
Sampling Method: More often than not, as it usually is a norm, the method we selected for the
sampling is quite literally the random sampling method as we took the values and variables is a
random manner and basis.
Sampling Unit: Textile Companies are the sort of units that we were asked to select and work
with as a result we listed Textile Companies as our sampling unit on our research. We took 5
Companies with 5 years as 2013, 2014, 2015,2016 and 2017.
Sample size: The size of the sample is fundamentally limited to 5 Textile Companies in
Bangladesh that we have collectively selected and the requisite 5 years data. So for the research,
we have the aforementioned statement is basically the sample size that we worked with.

Method of Data Analysis

We use EViews software for data analysis. This software helps quickly and efficiently create
statistical and forecasting equations. The least squares are a form of mathematical regression
analysis that finds the line of best fit for a dataset, providing a visual demonstration of the
relationship between the data points. Each point of data is representative of the relationship
between a known independent variable and an unknown dependent variable. We have done
correlation, descriptive study and regression analysis by least square method.

Descriptive Analysiss
Descriptive statistics a study is used to describe the basic features of the data in a study. They
provide simple summaries about the sample and the measures. Descriptive statistics are divided
into measurement of central tendency and measures of variability, or expansion. The central
tendency measure includes the mean, median and mode, when the measures of variability
include the standard deviation or variance, the minimum and maximum variables, and

22
the kurtosis and skewness.

Share price
We choose five textile company and collect five year data from annual report so we have 25
sample.We can see from the table that the mean of share price is 29.84920. We can see from
the table that the maximum value of share price is 52.77000 and the minimum value is
11.03000 with a standard deviation of 15.91878. We can also see from the table that the median
of share price is 27.67000.

Divident Per Share

From our analysis, We can see from the above table that the mean of divident per share is
0.036475. We can see from the table that the maximum value of divident per share is 0.085871
and the minimum value is zero with a standard deviation of 0.024931.We can also see from the
table that the median of divident per share is 0.037041.

Earning Per Share

We can see from the table that the mean of EPS is 2.426800. We can see from the table that
the maximum value of EPS is 7.090000 and the minimum value is 0.560000 with a standard
deviation of 1.911003. We can also see from the table that the median of EPS is 1.740000.

23
Price Earning Ratio
From our analysis, We can see from the above table that the mean of P/E ratio is 14.93691. We
can see from the table that the maximum value of P/E ratio is 31.08989 and the minimum value
is 6.409348 with a standard deviation of 7.630193. We can also see from the table that the
median of P/E ratio is 11.57692.

Return on Assets
We can see from the table that the mean of ROA is 0.045268. We can see from the table that
the maximum value of ROA is 0.122814 and the minimum value is 0.015646 with a standard
deviation of 0.029989. We can also see from the table that the median of ROA is 0.045269.

Total Assets (LN)

From our analysis, We can see from the above table that the mean of TA is 21.20000. We can
see from the table that the maximum value of TA is 23.00000 and the minimum value is
20.00000 with a standard deviation of 1.190238. We can also see from the table that the median
of TA is 21.00000.

Correlation
Correlation is used to test relationships between quantitative variables or categorical variables. In
other words, it’s a measure of how things are related. The study of how variables are correlated
is called correlation analysis. The Pearson product-moment correlation coefficient is a measure
of the linear relationship energy between two variables. The Pearson's correlation symbole is "ρ"
when it is measured in the population and "r" when it is measured in a sample. Pearson's
correlation range from -1 to 1. When r of -1 than it indicates a perfect negative linear
relationship between variables, when r of 0 indicates no linear relationship between variables,
and when r of 1 indicates a perfect positive linear relationship between variables.

24
  The correlation of dividend per share with share price is r = -0.016409 and it is very week
negative correlation.
 The correlation of earning per share with share price is r = 0.600145 and It is positive
moderate correlation.
 The correlation of price earnings ratio with share price is r = .0289056 and it is positive
week correlation.
 The correlation of return on assets with share price is r = 0.060881 and it is positive but
very week correlation.
 The correlation of total assets with share price is r = .664643 and it is positive moderate
correlation.

Regression analysis
Regression analysis is also used to understand which among the independent variables are
related to the dependent variable, and to explore the forms of these relationships.

25
We choose five textile companies and collect last 5 year data for every company. We collect
sample data from 2013 to 2017 for every company. We also used panel least squares method for
analysis. Our dependent variable is spare price (SP) and independent variable is return on assets,
total assets, dividend, earning per share and price earnings ratio.

Analysis of coefficient
Number or other well-known factor (usually a constant) by which another number or factor
(usually a variable) is multiplied.
Our equation
SP = C + β1EPS +β2PE + β3ROA +β4TA + β4DPS
Here,
C = constant
SP = Share price
P/E = Price Earnings Ratio

26
ROA = Return on Assets
TA = Total Assets (LN)
DPS = Dividend per Share

We rewrite our equitation from our regression table

SP = -38.94457 + 12.33364 – 0.182787 – 708.3579 +3.450784 + 13.79364
Above mention equation show the positive and negative relation of dependent variable and all
independent variable. We can say from the equation that if EPS raise 1% than SP will increase
12.33364 which indicate the positive relationship. If PE increase 1% than SP decrease -0.182787
which indicate the negative relationship. If ROA increase 1% than SP decrease -708.3579 which
indicate the negative relationship. If TA increase 1% than SP raise 3.450784 which indicates the
positive relationship. If DPS increase 1% than SP raise 13.79364 which indicate the positive
relationship.

Hypothesis test
An F-test is any statistical test in which the test statistic has an F-distribution under the null
hypothesis. Here, we set significant level for hypothesis test. Our significant level is α = .1.
When probability “p” value is less than significant level than its reject null and “p” value is
greater than significant level than it does not reject null.
Variable Probability Less α Relationship Reject or does
than/Greater not reject
than

EPS 0.0000 < .1 Significant Reject null

relationship hypothesis
PE 0.5361 > .1 No significant Does not
relationship reject null
hypothesis
ROA 0.0000 < .1 Significant Reject null
relationship hypothesis
TA 0.0343 < .1 Significant Reject null
relationship hypothesis
DPS 0.6749 > .1 No significant Does not
relationship reject null
hypothesis

27
Coefficient of determination
The coefficient of determination, also commonly known as "R-squared," is used as a guideline to
measure the accuracy of the model. The coefficient of determination is used to explain how
much dependent variable is explained by independent variable.
From our analysis, we can see that the value of “R-Square” is 0.953149. The value of “R-square”
is 0.953149 means that dependent variable explain 95.31% of all independent variable. “R-
square” is 95.31% refer to our dependent variable is strongly explain all independent variable.
Our regression analysis shows that the adjusted “R-square” is 0.940820. Its means that our
models explain 94.08% of proportion of total variance.

F – Test Analysis
F-test is any statistical test in which has an F-distribution of test statistic under the null
hypothesis. It is most often used when comparing statistical models that have been fitted to a
data set, in order to identify the model that best fits the population from which the data were
sampled.
From our analysis table shows that F- statistic is 0.000000. We know that the value of F- test is
less than the significant level value which indicates the model is good fit and the value of f- test
is higher than significant level which indicates the model is not good fit. So we can say that our
model is good fit because f-test value is less than significant level.

Summary of all analysis

Variable Correlation Hypothesis Test Coefficient

Null Alternative
DPS Negative correlation Yes Positive
relationship
EPS Positive moderate Yes Positive
correlation relationship
PE Positive week correlation Yes Negative
relationship
ROA Positive week correlation Yes Negative
relationship
TA Positive moderate Yes Positive
correlation relationship

R square 0.953149
F- statistic 0

28
 Conclusion
We have chosen five textile industries for our research. We collect date from secondary source.
For analyzing the data we use data analysis model and panel least square method. Generally this
study examined the impact of dividend per share, price earnings ratio, total assets, and return on
assets and firm size on the share price of textile industry. The model is good fit model that we
have used our data set.

29
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