**1. Introduction**

In today's world, the performance of business and corporates of a country plays a very important role in its position as a world leader. The per capita income, employment rate and other economic variables depend a lot upon the performance of business houses in that country. The stock price of a company fluctuates according to the performance of the business and the economy as a whole. The timing and the decision about buying and selling of stock depend upon the

© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

stock price level. When an investor decides to invest in a stock he always looks for strong and growing companies, the value of the firm is reflected in the stock prices of that firm, and that is how an investor without any finance knowledge selects the stock-by-stock price movements.

In the present study, the attempt has been made to study the impact of select internal determinants and macroeconomic determinants of the share price of listed 26 nonfinancial companies in the Muscat Securities Market. A lot of work has been done on this topic, but most of the studies are based on establishing a relationship between dividend policy and stock prices. To the best of researcher's knowledge, this study is the pioneer study on the Oman capital market, based on stock price determinants of the companies from Muscat securities market. In the previous studies from GCC countries [4–6] and studies from other countries, authors have not studied any specific sector for share price determinants. Another contribution of this study is that it is exclusively based on nonfinancial companies. The nature of balance sheet in financial companies varies from nonfinancial companies in terms of leverage, current assets and fixed assets composition. Therefore, to study the impact of company-specific determinants on share prices a separate sample of financial and nonfinancial companies would yield better results rather than studying the mix of all types of

Stock Price Determinants: Empirical Evidence from Muscat Securities Market, Oman

http://dx.doi.org/10.5772/intechopen.77343

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The whole chapter is organized into five sections including introduction. Section 2 describes the literature review. Section 3 discusses the methodology and data. Section 4 presents the empirical results and its discussion thereof. Section 5 presents conclusion with policy implications.

Collins [7] was the pioneering work on determinants of share prices based on the US market, the findings of the chapter recognized book value of equity, dividend, net profit and operat-

Nirmala et al. [8] used fully modified least square regression model on panel data of 37 Indian companies from 2000 to 2009. The study identified price earnings ratio, leverage and dividend per share as the major determinants of share prices. In the Indian context, this study was also conducted by Tandon and Malhotra [9]; they tried to identify determinants of stock prices for 100 companies listed in National Stock Exchange (NSE) using linear regression model from 2007 to 2012. The results indicated that firms' book value, earning per share and price-earnings ratio have a significant positive association with firm's stock price, while dividend yield has a significant inverse association with the market price of the

Malhotra and Prakash [10] studied the determinants of stock prices of Indian companies during 1990–1999 with the help of correlation and regression analysis. Book value per share, dividend per share, market to book ratio and PE ratio emerged as the significant determinants

Oseni [11] studied the impact of earnings per share (EPS), oil price, dividend per share (DPS), GDP, foreign exchange rate and interest rates on share prices of 130 companies from the Nigerian stock exchange. The study revealed a strong positive correlation between stock

ing cash flows as the significant factors affecting share prices.

prices and EPS, oil price, dividend per share and GDP.

companies.

firm's stock.

of the share prices.

**2. Review of literature**

One of the key sources of financing for the listed firms is the stock issue, and for successful stock issue, firms need to have a strong track record in the stock market. There are various stakeholders to the business, like shareholders, creditors, customers, employees, and government. The rising stock price is an indicator of good management and satisfaction for all the stakeholders. There are company-specific and market-related determinants of stock prices; in literature, many theories are available that explain the movement in the stock prices.

One of the most significant theories is the Efficient Market Hypothesis (EMH), which is based on the assumption that rational investors in the market react to the available information like company fundamentals and other important declaration about the company to decide on the stock buying or selling. If they feel that the information is positive, then they retain the shares if already bought or buy the one which was not purchased earlier and vice versa. The action of buying and selling stocks by the investors is responsible for changes in stock price. There are three forms of EMH—weak, semi-strong and strong form—and they vary regarding available information for public and investors. Another theory 'Random walk' states that stock prices are random and cannot be predicted by any means. This theory has been empirically tested many times and proved by the researchers. A random walk is consistent with EMH, as the flow of information is random which helps investors in reassessing the stock price.

The third theory 'Behavioral Finance Theory' is very different from the random walk and the EMH theories. This theory states that investors do not behave rationally rather they invest by psychological and behavioral factors; for example, they will invest in the stock if the stock price is increasing even if there are no significant changes in the company fundamentals.

Gordon [1] revealed that dividend payment and growth rate of the company have an impact on the intrinsic value of shares. The model was based on the assumption of constant growth in dividends which was one of the weaknesses of the model, but still, it is the highly used model to calculate the intrinsic value of the stock. This model claims that expected dividend and growth rate of the company are positive determinants of stock prices.

A considerable amount of research has been done to find out internal determinants of share price changes of companies, some of the common factors found are dividend yield, total assets, earning per share, capital structure and book value per share. Apart from internal variables, macroeconomic variables also have an impact on share prices that have been discussed by Roll and Ross [2] in his arbitrage pricing theory (APT), a framework for pricing securities for investors. According to Ross, common macroeconomic factors affecting share prices were unexpected changes in inflation, GDP and changes in the yield curve. APT model is flexible as investors can select other factors also depending on the market like for oil exporting and importing countries oil price can be an important factor affecting security prices. Mukherjee and Naka [3] supported the APT theory by confirming the impact of economic variables on the stock returns; they argued that changes in economic variables affect dividend payments and discount rates and thus have an impact on share prices as well.

In the present study, the attempt has been made to study the impact of select internal determinants and macroeconomic determinants of the share price of listed 26 nonfinancial companies in the Muscat Securities Market. A lot of work has been done on this topic, but most of the studies are based on establishing a relationship between dividend policy and stock prices. To the best of researcher's knowledge, this study is the pioneer study on the Oman capital market, based on stock price determinants of the companies from Muscat securities market. In the previous studies from GCC countries [4–6] and studies from other countries, authors have not studied any specific sector for share price determinants. Another contribution of this study is that it is exclusively based on nonfinancial companies. The nature of balance sheet in financial companies varies from nonfinancial companies in terms of leverage, current assets and fixed assets composition. Therefore, to study the impact of company-specific determinants on share prices a separate sample of financial and nonfinancial companies would yield better results rather than studying the mix of all types of companies.

The whole chapter is organized into five sections including introduction. Section 2 describes the literature review. Section 3 discusses the methodology and data. Section 4 presents the empirical results and its discussion thereof. Section 5 presents conclusion with policy implications.
