Research on the Correlation Between Company Performance and Its Share Price

Abstract

This paper mainly explores the correlation between corporate performance and stock price returns in the Chinese stock market. Theoretically, the stock value of a highly profitable company would also increase accordingly. But due to the structure of A-share investors, the extent of this correlation is yet to be proven. In this study, stock returns are set as explained variables, and market index returns, corporate earnings growth rates and momentum are used as explained variables. This article uses the financial statements and stock price information of Chinese listed companies as data for modeling. The selected companies are from the food and beverage industry, the medical industry and the home appliance industry. Multiple linear regression analysis was used as the method of this paper. From the regression results, it is concluded that the market index plays a leading role in stock returns. The study indicates that there is a certain positive correlation between company performance and stock price returns to a certain extent, and the degree of correlation varies with industries. The momentum factor has a positive or no correlation with returns, depending on the industry. This deviates from the theoretical assumption that momentum is a negative factor.