Determinants of Price-Earnings Ratio in the context of Vietnam

Abstract

The purpose of this study is to research the relationship between Price- Earnings Ratio with its fundamental determinants – dividend payout ratio, growth in sales, systematic risk, unsystematic risk and leverage ratio of all non-financial listed companies on Hochiminh Stock Exchange.

The Literature review was conducted to provide the theoretical framework for

the research model in this study. And this study test the effects of a so new factors an Price-Earnings ratio that is unsystematic risk measured by standard deviation of return. The relationship is mainly examined using the panel regression method for non-financial listed companies during the period 2007 to 2011.

After collecting and analyzing the information of non-financial companies, the results have shown that dividend payout ratio and unsystematic risk significantly have positive effects on Price-Earnings ratio. However, the research could not make conclusion for other determinants.

Although the impacts of fundamental factors on Price-Earnings multiples could not be proved, the study keeps contributing in exploring the effects of unsystematic risk on Price-Earnings ratio. Despite limitations of the study, it is hoped to contribute implication for investors in making good investments and building their healthy portfolios.