A Comparative study for pre and post war performance of Colombo Stock Exchange (CSE)

D A I Dayaratne

doi:10.4038/suslj.v13i1.7672

Abstract

It is currently debated in academic and other forums that the peace dawning in the country has induced the performance of CSE in Sri Lanka. It is invariably accepted that the smooth functioning of the stock market is largely determined by the stability of the country’s business environment. Thus, this paper attempts to explore whether there is an improvement in the performance of the each business sector listed on CSE in the post war periods. For the purpose of separately highlighting the impact of peace on stock market performance some pre war periods are also considered. The period 2005 to 2008 is considered as pre war period and the period 2009 to 2012 is considered as post war period. To measure the performance of the CSE some important indicators were used namely, sector indexes, market capitalization of the companies, foreign purchases and sales and total turnover of the CSE and key market ratios. Perhaps importantly, these indicators are very widely used in measuring stock market performance by practitioners and academics in developed and developing markets. It is established that majority of the performance indicators used in this study are highly sensitive to the peaceful dividend in the country. Moreover, it is found that majority of indicators have gained significant improvement after the war. The findings imply that peace is an essential element for the development of the capital market in Sri Lanka. DOI: http://dx.doi.org/10.4038/suslj.v13i1.7672Sabaragamuwa University Journal 2014; V. 13 No. 1 pp 43-55

Highlights

It is generally believed that among the key drivers of the economy in a country, the activities of the capital market play a vital role
The overall market performance is measured by the All Share Price Index (ASPI) and the performance of the industries is measured by the sector indexes
This paper looks at the modalities of the pre and post war of the variables namely, new listing of companies in the stock market, Sector ratios such as dividend yield, P/E ratio and price to book value

Summary

Introduction

It is generally believed that among the key drivers of the economy in a country, the activities of the capital market play a vital role. Konar and Cohen (2001) attempted to link the performance of the stock value in the market and the degree of firm’s compliance to the environmental laws They suggest that the companies which adopt the environmental regulations are rewarded than the firms which are not adopting the compliance measures. The Capital market sources suggest that after the war Sri Lanka has achieved its ever highest growth rate in 2012 which is 8.6%. This very noticeably reveals that stock market growth and economic growth moving together. After the “coffee blight” the British planters required funds to replace the coffee plantations in Sri Lanka with tea plantations This led to the setting up of the Colombo Share Brokers Association (CSBA) which commenced trading of shares in limited liability companies in 1896.

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