Determinants of stock performance of locally listed companies in Uganda

Abstract

This study investigates the determinants of stock performance using time series data from 2001 to 2020. The study was anchored on three objectives, namely, 1) to examine the effect of financial leverage on the stock performance of locally listed companies in Uganda; 2) to identify the effect of firm size on the stock performance of locally listed companies in Uganda and; 3) to establish the effect of capital structure on the stock performance of locally listed companies in Uganda. This study used several measures to quantify the independent and dependent variables. The dependent variable (Stock Performance) was measured by earnings per share, while independent variables such as firm size, financial leverage, and capital structure were measured by total assets, debt ratio, and debt to equity ratio, respectively. Using the ARDL model, this study sought to explore the relationships between the study variables. This model was controlled for inflation and interest rates using data sourced from the financial statements of all locally listed companies in Uganda and the Bank of Uganda. The findings revealed that capital structure and stock performance were not significantly related. Furthermore, the findings reveal that financial leverage and stock performance are positively related. Finally, the study reveals that firm size and stock performance are negatively related. The study concludes that the stock performance of listed firms is necessary for the economic growth of both developed and developing countries. Consequently, the study recommended that that; 1) listed companies should avoid high levels of debt financing, especially in the presence of high levels of competition; 2) Locally listed firms should adopt best practices in controlling the level of financial leverage that will go a long way in enhancing stock performance; and 3) firms should look to deploy constructive strategies to expand their market