The Relationship Between Price to Book Value Ratio and Financial Statement Variables - an Empirical Study of Companies Quoted at the Nairobi Stock Exchange

Abstract

The study set out to establish the relationship between price to book value ratio and dividend payout ratio, return on total assets, return on equity, return per share, dividend per share and growth rate of earnings after tax for companies quoted at the Nairobi Stock Exchange. This is because not much is known about the factors that impact on this ratio since most of the studies on the price to book value ratio were carried out in developed markets and their applicability in developing markets like the Nairobi Stock Exchange has not been empirically tested. The companies that comprise the Nairobi Stock Exchange 20 share index were used to predict price book value ratio. Information gathered was summarized and multiple linear regression was used to estimate price book value ratios. Price book value was the dependent variable and proxies for dividend payout ratio, return on total assets, return on equity, return per share, dividend per share and growth rate of earnings after tax earnings formed the independent variables. This study has established a statistically significant relationship between price book value ratio and dividend payout ratio, return on total assets, return on equity, return per share, dividend per share and growth rate of earnings after tax for the period 1991 to 2003 for companies that constitute the Nairobi Stock Exchange 20 share index ..