Relationship between Sustainable Growth and Share Price

Abstract

Many investors, practitioners and academicians are interested in knowing the factors that are pertinent in influencing share prices. Growth is generally among the important equity value drivers. Sustainable growth rate (SGR) is important for assessing the shortcomings of company growth and it captures the value creation probability of a company. Therefore, the aim of this study was to determine the relationship between sustainable growth and share price movements of companies that are listed on the Johannesburg Securities Exchange from 2004 to 2014. For this purpose, sustainable growth data from 93 JSE listed companies was obtained from McGregor BFA. The Pearson’s Correlation Coefficient was used to establish the relationship between sustainable growth and share price of the 93 JSE listed firms with data for at least 15 consecutive years between 2004 to 2014. All the companies showed a relationship between sustainable growth rate and share price with most of the firms (51.6%; n = 48) showing positive correlation, whilst 48.4% of the firms had negative correlation between growth and share prices. Such information is important for better understanding the possible factors that could drive the value of equities.