**5. Conclusion**

According to the results of fixed effects model earnings per share, a log of total assets (a proxy for company size) and crude oil prices are found to be significant determinants of the changes in stock prices. All the three variables have a positive relationship with share prices. The macroeconomic variables growth rate in GDP and consumer price index are found to be

**Coefficient Probability value Coefficient Probability value**

**Variables Fixed effects model Random effects model**

28 Firm Value - Theory and Empirical Evidence

Constant −7.520228 0.0146 −2.388403 0.0112 Lag dependent 0.046939 0.0306 0.049934 0.0116 Dividend −0.085040 0.8511 −0.158990 0.4880 Leverage −0.348200 0.6613 0.694747 0.0286 EPS 12.28314 0.0000 12.16380 0.0000 GDP 0.004827 0.7650 0.004485 0.7791 Inflation −0.053186 0.2667 −0.080517 0.0778 Size 0.558998 0.0409 0.082158 0.1875 Oil price 0.349209 0.0432 0.316537 0.0620 PE ratio −0.000300 0.8755 −0.000619 0.7284

Results of the Hausman test are reported in **Table 3**, and according to that, null hypothesis is accepted. Therefore, random effects model is supposed to be a better model for analyzing this panel data. Value of R square is also quite high with 93.23% of variations in stock price explained by the regression model. In Random effects model, among the company-specific variables used in this study, lag of share prices, earnings per share and leverage are the statistically significant variables. The two variables earnings per share and first lag of share prices are even significant at 1% level of significance. The lag of the share prices has positive coefficient which means the previous hike in share prices are responsible for the increase in share price of the next year. Investors invest by stock price movement; this result supports the behavioral theory of finance. Earnings per share (EPS) is one of the most dominant determinants of share prices with the highest positive regression coefficient of 12.16 and significant at 1%. Debt to the total asset (leverage) is also significant and is positively related to sharing prices of the sample companies. The dividend has proved to be an insignificant determinant of the share prices, and this supports the irrelevance of dividend policy on the firm value. The logarithm of total

assets (size of the company) and PE ratio are also not significant determinants at 5%.

not seen as important and significant variables for share prices in Oman.

From the three external variables, inflation rate and crude oil price are significant at 10% level of significance. The result of inflation rate is consistent with the previous studies and has a negative impact on share prices [21, 23]. Oman being an exporter of crude oil, the oil prices are significant determinants and have a positive impact on them. The growth rate in GDP is

insignificant in explaining the changes in share prices.

**Table 2.** Determinants of share price according to fixed and random effect model.

The study aimed at investigating the effect of dividend payout, EPS, a log of total assets, debt ratio, PE ratio and previous year stock price on the current stock price of 26 listed nonfinancial companies in Oman. Three economic variables—growth rate in GDP, crude oil prices and consumer price index—are also considered as an independent variable in this study.

The empirical analysis is based on random effect model regression analysis with the stock price as the dependent variable. Based on the data analysis, the study finds that EPS has a significant positive effect on the price of common stock. Relatively, the value of the coefficient (12.16) for EPS is the highest among all the independent variables. In the majority of the existing studies, EPS had shown the same relationship with stock price [5, 6, 15, 19, 20]. EPS is a direct measure of shareholders earning on one share, and stocks with high EPS are commonly selected by equity analysts. Debt ratio (leverage) is also a significant variable having a positive relationship with stock price. Conceptually higher debt capital is an indication of financial risk, and hence an investor avoids these stocks. The reason for a positive relation between leverage and stock price could be a low percentage of debt capital in sample companies, as up to a certain level debt capital is favorable for stockholders which has been explained by the concept of 'trading on equity.'

First lag of stock price is also significant and has a positive effect on current stock price consistent with Şebnem and Vuran [16]. This finding supports 'Behavioral Finance Theory' which explains the inconsistent behavior of investors toward theories and concepts. Dividend payout is insignificant determinant for stock prices, and results are consistent with the previous studies [9, 15, 18]. However, intrinsic value of a stock depends on future dividends; this may be because of anomalies or investors giving weightage to capital gains. The firm size is not significant; this result shows that investors are not giving any preference to bigger and established firms.

The macroeconomic changes also influence stock prices; inflation is negatively related to stock prices which support the well-known study of Fama and Schwert [23]. He justified the negative relationship by arguing that 'an increase in inflation causes uncertainty and reduces future economic activity and thus future earnings of the firm which results in a reduction of stock price.'

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The current study confirms that stock prices are affected by certain firm-specific variables and also by select economic variables. The results of the study might help investors and equity analysts in better decision-making. The study has achieved its objectives and recommends future research in the context of Oman with financial companies or with another set of variables that might have a significant effect on stock prices.
