The influence of Fundamental Indicators on Stock Prices: Evidence from Listed Manufacturing Firms in East Africa

Abstract

This study aims to determine the influence of fundamental indicators on the stock prices of listed East African manufacturing companies. Specifically, the study investigates the extent to which profitability, leverage, and market fundamentals affect the stock prices of manufacturing companies in East African exchanges. To achieve this, the study used fixed-effect regression with Driscoll and Kraay standard errors on an unbalanced panel dataset comprising 26 companies over 13 years, from 2010 to 2022. The results of the study revealed that the stock prices of the targeted industry are sensitive to the Book to Market ratio, Debt-to-Equity ratio, Price to Earnings Ratio, and Growth of Earnings per share and Return on Assets, while Return on Capital Employed lack statistical significance. Furthermore, while stock prices are positively influenced by EPS growth and Book to Market ratio, a negative influence is observed from Debt to Equity and Price to Earnings ratio.

Keywords: Fundamental analysis; Stock Prices; Manufacturing firms; East Africa