Study On The Ralationship Between P/E Ratio And Its Influence Factors In Our Manufacturing Listed Companies

Since the trend of China’s economy reform in the late1970s, gave birth to theemergence and development of domestic capital markets. Over the last two decades,China’s capital markets have rapidly developed into a national market from theoriginally small and regional markets, a process that has taken many advancedmarkets several decades or even a hundred years to accomplish. Although there havebeen ups and downs along the way, China’s capital markets have managed to weatherdifficult times with the support of the government and market participants. Withmarket sizes steadily expanding, market mechanisms continuously improving,financial institutions becoming more competitive and investors growing more mature,China’s capital markets have gradually developed into a marketplace whose legalsystem, trading rules and regulatory frameworks are increasingly aligned withinternational standards and principles. Development of capital markets higherdemands on enterprises’ accounting system, promote our accounting principalsimprove and standardized continuously. Especialy narrow the gap between ouraccounting system and the IAS with the implementation of new accounting andauditing standards. This is helpful to improve the quality of financial information ofChina’s capital market, make it progressively more science to reflect the true financialcondition of the enterprise, and services investors and other stakeholders.The P/E ratio is an important index for unit, the stocks and the market that easy tounderstand and to gain. Manufacturing as a major component of listed companies inChina, cover a wide industry and plays an important role on China’s national economy.Therefore, Manufactrring’s P/E ratio is this paper’s research object. This helpsanalysis the key influence factoers on P/E ratio in China’s manufacturing industry andthe correlation between them. Give investors a reference information when they do investment, then do a rational investment. So this article research the relationshipbetween industry price-earnings ratio and its influence factors in the macro and microrespects. Combinate these two aspects of the analysis in order to manufacturing ifrelationships there have between industry price-earnings ratio and these factors, andwhat relationship they are.First, use descriptive statistics, Granger causality test and Engle-Granger test ofempirical analysis on the relationship between2001to2010manufacturing averageearnings and its influence factors, and find individual factors of banks in a one-yeardeposit rate, security ratio have some causal relationship with manufacturing averageP/E ratio. While the other four factors do not have a causal relationship withmanufacturing average P/E ratio, but the manufacturing average earnings and itsinfluence factors passed the Engle-Granger Test, manufacturing average earnings andits influence factors have exist a linear relationship and can build a regression modelto analysis. This manifest that we cannot be simple ruling in which a single factoreffect on manufacturing average earnings, forward or reverse, but should be integratedthroughout the macro environment to determine the relationship between these factorsand average P/E ration in the manufacturing industry.Second, this article has selected manufacturing stocks’ P/E ratio from2008to2010，and empirical analysis it with its influence factors. When descriptive statisticthe manufacturing stocks earnings in three years find the2009stock earnings werehighest, and three years’ stocks P/E ratio vary a lot, describes the various levels of P/Eratio of listed companies in manufacturing industry in China showed large difference.Manufacturing stock earnings and their Pearson correlation analysis of factorsaffecting and finding dividend distribution rates, operating profit growth rate,basicearnings per share growth, and ROE at0.01level and manufacturing stocks onearnings significantly related, and dividend distribution rate impact on manufacturingstocks earnings is a forward, basic earnings per share growth, operating profit growthand ROE effect on stock earnings is in the opposite direction. Through Tehranexamination above, this article has established two multiple linear regression model toanalysis the correlation between manufacturing stock earnings and its influencefactors. By regression analysis found the special factors this article has proposed areshowed positive correlation with manufacturing stocks earnings. Manufacturing stockP/E ratio and dividend distribution rate render significant positive correlation,correlation coefficient reaches19.8239. ROE, a index represent the company’s profitability, rendering a very significant negative correlation with stock earnings.Beta coefficient represents the equity risk of the company showing a significantnegative relationship with stocks P/E ratio.Above all, this paper through empirical analysis proposed five suggestions:Strengthening enterprise’s information disclosure. Standardize investors’ behavior.Consider hysteresis effect about macro-factors. Pay attention to characteristic index ofmanufacturing industry. Break the traditional view of ROE.