DETERMINANTS OF PRICE-EARNINGS RATIO: THE CASE OF HO CHI MINH STOCK EXCHANGE

Abstract

This study examines how and to what extent profits development, rate of paid dividends, dividends development, and unsystematic risk have influence on Price Earnings ratio. With the past literature of Price-Earnings ratio, profits development, rate of paid dividends, dividends development, and unsystematic risk have both significant and insignificant effects on Price-Earnings ratio. A sample of 1,285 was selected from 257 different non-financial companies in HOSE, a Vietnamese Stock Exchange and tested in quantitative method, particularly the cross-sectional time-series method. The results indicate that two of four independent variables (Dividend payout ratio and Unsystematic risk) result in a significant correlation with the Price-Earnings ratio. Of which, the Dividend payout ratio gives a positive correlation whereas a negative one belongs to Unsystematic risk. That is, the amount of paid dividend and the percentage changes in earnings per share will play a vital role in identifying stock price and then, Price-Earnings ratio. Academically, this paper offers an opportunity to further studies of the Price-Earnings ratio in Vietnam by testing effects from other factors like inflation, interest rate, firm size, and so on. Practically, these findings give investors and related participants a hand to keep an eye on the changes in the Dividend payout ratio and Unsystematic risk to anticipate the stock price, which is an advantage for traders to get profits. All of those will be informatively discussed in the final chapter.