PANEL REGRESSION ANALYSIS ON SHARE PRICE OF CONSTRUCTION FIRMS

Abstract

This paper investigates the impact of financial and non-financial factors on the share price of publicly listed construction firms from Financial Year 2014 to 2019. Although there were studies that regressed share price on different variables for construction firms (Sari, 2021), there is no fixed-effects panel data study focusing on the composition of the board of management as possible determinants of share price.

It is hypothesized that financial and non-financial factors affect the share price. Non-financial factors include board composition factors, firm age, and share dilution or buyback. Board composition factors include change of Chair of the Board or Chief Executive Officer (CEO), CEO duality, the addition or loss of other Directors, and number of related board members. Financial factors include asset turnover ratio, current ratio, debt-to-equity ratio, earnings per share, net profit margin, price-to-book value ratio, price-to-earnings ratio, revenue growth rate, return on assets ratio, and return on equity ratio.

The research design uses fixed-effects panel regression to examine the influence of these factors on the share price. Fixed-effects panel regression is used for two reasons: to increase the sample size, and to identify unique factors for each firm, such as its management or culture that are specific to the firm. A total of 40 out of 282 relevant listed firms on the Singapore Stock Exchange were selected for the study for various reasons such as availability of data. The data were collected via secondary sources such as SG Investors website and Annual Reports published by these listed firms.

It is found that the firm-specific effects of 10 firms, the addition or loss of other Directors, number of related board members, age of the firm, and return on assets ratio affect the share price significantly. Among these 10 firms, the firm-specific effects of seven firms as well as the number of related board members were negatively correlated with share price, implying that investors may not view firms with related board members positively.