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 48 

 

                       FINANCE AND BANKING 

                                                                  IJFB VOL 13 NO 1 (2023) P-ISSN 2574-6081  E-ISSN 2574-609X 
                                                  

        Available online at https://www.cribfb.com 

                                                                                                                                           Journal homepage: https://www.cribfb.com/journal/index.php/ijfb 
                                                                                                                                                                                                   Published by CRIBFB, USA 

IMPACT OF FIRM PERFORMANCE ON STOCK RETURNS: 

EVIDENCE FROM LARGE-CAP, MID-CAP AND SMALL-CAP 

STOCKS            

          
 Muhammadriyaj Faniband (a)1   Pravin Jadhav (b)    Kedar Marulkar (c)    

 

(a) PhD Research Scholar, Institute of Infrastructure, Technology, Research and Management, Ahmedabad-380026, India; E-mail: 

riyajfaniband@gmail.com 
(b) Assistant Professor, Institute of Infrastructure, Technology, Research and Management, Ahmedabad-380026, India; E-mail: 

pravinqed@gmail.com 
(c) Assistant Professor, Department of Commerce and Management, Shivaji University, Kolhapur, India; E-mail: kedar.marulkar@gmail.com  
 

 
A R T I C L E I N F O 
 

 

Article History: 
 

Received: 1st January 2023 

Revised: 18th February 2023 
Accepted: 20th February 2023 

Published: 28th February 2023 

 
Keywords: 
 

Firm Performance, Net Sales,  

Net Profit, EPS, Stock Return 

 

 
JEL Classification Codes: 

  

C31, G11, G12, G32, L25  

  

 
A B S T R A C T 
 
In this article, we analyse the impact of firm specific factors, namely, total income, net profit, and 

earnings per share (EPS) on stock returns of companies from the large cap, mid-cap and small- cap 

(LMS) categories using the panel quantile regression. We also use the ordinary least square method to 
compare our panel regression results. We select companies from NSE Large Cap100, NSE Mid Cap 100 

and NSE Small Cap 100 Indices and each index is composed of 100 companies. These indices reflect the 

overall state of the Indian stock market. Our empirical analysis based on quarterly data from June 2010 

to March 2022 shows some important findings. First, net sales significantly and negatively affect stock 

returns across the large, mid, and small cap stocks. Second, net profit and EPS have a substantial and 

positive impact on companies from all the categories. However, the coefficients are not significant across 

all quantiles. In short, the impact of firm specific factors on stock returns is not homogeneous across the 

LMS stocks implying that these factors do not influence stocks in a uniform way. The plausible reason 
may be that large, mid, and small cap companies share differences in terms of market capitalisation, 

growth potential and volatility.  

 
 

© 2023 by the authors. Licensee CRIBFB, USA. This article is an open-access article distributed 
under the terms and conditions of the Creative Commons Attribution (CC BY) license 

(http://creativecommons.org/licenses/by/4.0/).                           

 

INTRODUCTION 

The behavior of stock price is a very complicated phenomenon in the area of financial research because the precise 

forecasting of future prices cannot be done. However, the analyst, portfolio manager and investors try to predicate share 

price looking at the past data. The performance of economy, industry and company affect stock prices (Li et al., 2020; Nayak 

& Barodawala, 2021; Tahir et al., 2013). Bottom-up and top-down are two important investment approach. Bottom-up 

investing focuses on individual stock analysis and reduces the importance of macroeconomic and market cycles. Bottom-

up investor’s emphasis on company specific factors and its fundamentals, on the other hand, the industry and economy are 

the focus areas of top-down investors. The bottom-up approach assumes individual companies can do well even in an 

underperforming industry and that is the reason we examine the impact of firm- specific factors, namely, net sales, net profit 

and Earnings Per Share (EPS) on stock returns in India. This is clearly revealed in the past studies, which show that firms’ 

fundamentals influence the stock returns (Anwaar, 2016; Budi & Davianti, 2022; Santoso et al., 2020; Saputra, 2022; Sausan 

et al., 2020; Sudirman et al., 2020; Tahir et al., 2013). However, these studies have focused on companies from well-

established or large market capitalisation (or market cap) category and they have ignored mid cap and small cap companies. 

Stocks in the stock exchanges are often divided among three groups based on their market capitalisation as large-cap, mid-

cap, and small-cap (LMS) stocks. In India, companies with Rs 20,000 crore or more come under large-cap companies. 

Meanwhile, the market cap of Rs 5,000 crore and less than Rs 20,000 crore is for mid-cap companies and small-cap 

companies put under a market cap of below Rs 5,000 crore. Furthermore, the large, mid and small cap stocks also share 

                                                      
1Corresponding Author: ORCID ID: 0000-0001-6775-3582 

© 2023 by the authors. Hosting by CRIBFB. Peer review under responsibility of CRIBFB, USA.  

https://doi.org/10.46281/ijfb.v13i1.1969 
 

To cite this article: Faniband, M., Jadhav, P., & Marulkar, K. (2023). IMPACT OF FIRM PERFORMANCE ON STOCK RETURNS: EVIDENCE FROM 

LARGE-CAP, MID-CAP AND SMALL-CAP STOCKS. Indian Journal of Finance and Banking, 13(1), 48-53. https://doi.org/10.46281/ijfb.v13i1.1969 

https://orcid.org/0000-0001-6775-3582
http://creativecommons.org/licenses/by/4.0/)
http://creativecommons.org/licenses/by/4.0/)
https://doi.org/10.46281/ijfb.v13i1.1969
https://orcid.org/0000-0002-5732-2217
https://orcid.org/0000-0003-3431-0210


Faniband et al., Indian Journal of Finance and Banking 13(1) (2023), 48-53 

 

49 

differences in terms of volatility and growth potential. The investors can make informed investment decisions based on this 

categorization. Keeping this point in mind, we extend previous studies by analysing the impact of net sales, net profit and 

EPS on stock returns of companies from large-cap, mid-cap and small-cap categories. This scenario motivated us to answer 

the following unanswered questions; Do net sales, net profit and EPS affect stock returns of companies from LMS 

categories? Whether the impact is homogeneous across LMS stocks? 

We address these questions by using the panel quantile regression model. We also use the Ordinary Least Square 

(OLS) method to compare results with panel quantile regression for a quarterly dataset ranging from June 2010 to March 

2022. Our research is different from the past papers for Indian stock market because it is the first study that covers the 

sensitivity of mid cap and small cap stocks along with large cap stocks to the firm specific factors. 

The outline of the paper is as follows. Section two describes the previous studies. Section three presents the dataset 

and variables. Section four provides the econometric models. Section five shows the empirical findings for the LMS stock 

returns. Section 6 close the paper with conclusion. 

 

LITERATURE REVIEW 

Some studies consider panel data to investigate the impact of firm specific factors on stock returns. Faniband and Marulkar, 

(2020) analyse the impact of total income, net profit, and EPS on stock price on companies from SENSEX using panel 

cointegration test. They find a long-run cointegration between the variables and share prices. They consider stock prices on 

the date results announcement. Further, the same authors (Faniband & Marulkar, 2019) confirm no causality between above 

variables and stock price using panel causality test and the same dataset. However, they do not consider mid and small cap 

companies.  

A specific group of studies are done on the impact of net sales on stock return. Sharma et al. (2015) reveal that 

sales has no impact on returns of stock from National Stock Exchange (NSE). Similarly, (Saputra, 2022) also finds that 

revenue has no impact on share prices of 20 listed firms from food and beverage industry in Indonesia. Tahir et al. (2013) 

show no effects of sales growth on stock returns of non-financial companies in Pakistan. 

Furthermore, another set of research is focused on net profit-stock returns. Rokhayati et al. (2021) use fixed effects 

model and find that the net profit margin has no impact. Sharma et al. (2015) find that net profit has no visible impact on 

NSE-listed companies. Babu and Kasilingam (2013) notice that stock price goes up with the increase in net profit in quarterly 

results. However, the increase in price was because of market condition rather than the announcement of results. Similarly, 

(Anwaar, 2016) using panel regression analysis and find that net profit margin has a substantial and positive effects on 

companies listed in FTSE-100 Index. Santoso et al. (2020), Sudirman et al. (2020) and Tikasari and Surjandari (2020) also 

show a substantial and positive impact of net profit margin on the stock returns. Saputra (2022) finds that net profit has a 

substantial impact on stock prices of 20 listed food and beverage companies in Indonesia. However, (Baber et al., 2006) 

find a negative impact of net profit on stock price.  

The previous studies on the impact of EPS on stock returns include (Sausan et al., 2020) and (Santoso et al., 2020) 

who reveal no impact of EPS on 21 property and real estate companies and engineering and construction services companies 

in Indonesia respectively. Sharma et al. (2015) and Tikasari and Surjandari (2020) find no effect of EPS on stock return, 

whereas (Choiriyah et al., 2021) notice a substantial impact on banking companies in Indonesia. Anwaar (2016) using panel 

regression analysis and find a substantial negative impact on listed companies in FTSE-100 Index. Tahir et al. (2013) also 

reveal the significant impact of EPS on stock returns of 307 non-financial listed companies in Pakistan. On the other hand, 

(Sudirman et al., 2020) show a positive and substantial effect on companies in the consumer goods industry. Menaje Jr 

(2012) finds a strong positive correlation between share price and EPS.  

 Menaje Jr. (2012) find a weak negative correlation between return on assets and share price. Kumar (2015) find 

that reaction of share price is mixed during pre and post announcement of quarterly results. Tahir et al. (2013) reveal the 

significant impact of market capitalization and book to market value on stock market returns of 307 non-financial companies 

listed in Pakistan. Sudirman et al. (2020) detect no effect of the debt-to-equity ratio on the stock price in Indonesia. Tikasari 

and Surjandari (2020) find that EVA has a positive and significant; no impact of the debt-to equity and current ratios on the 

stock returns. Sudirman et al. (2020) show that return on equity has a substantial positive effect, while the debt-to-equity 

ratio has no impact on the stock prices of the consumer goods sector companies in Indonesia. Ortiz et al. (2010) notice a 

significant anomaly for the last quarter but the clear stock return anomalies were not found for the first three quarters for 

loser small-cap stocks of Spanish market. Nasreen et al. (2020) notice that oil prices have a weak degree of association with 

stock returns of companies from clean energy and technology. Wardlaw (2020) study the impact of mutual fund pressure 

on stock returns. Duz Tan and Tas (2021) detect that twitter activity and sentiment affect trading volume and returns. Ni et 

al. (2015) reveal the impact of opening accounts number and turnover rate on a Chinese stock market. The results indicate 

that the impact is substantial from one to twenty-four months. Youssef et al. (2021) considers the EPU of badly affected 

COVID-19 countries and examines the linkages between stock indices and EPU using the time-varying VAR. They show 

the substantial positive impact of EPU on total dynamic spillover. On the other hand, the results of Arouri et al. (2016), Ftiti 

and Hadhri (2019) and Istiak and Alam (2020) find the negative influence of US EPU on stock markets. Chellaswamy et al. 

(2020) find the impact of inflation, interest rate and exchange rate on stock returns in China and India. 

The literature on LMS stocks is quite rare. Shukrant and Amanpreet (2018) find the significant impact of 

macroeconomic factors (Index of Industrial Production, inflation, exchange rate etc.) on BSE LMS indices. Khanra and Dhir 

(2017) reveal that small-cap stocks (NSE Small 100 index) are less affected by the market volatility index in comparison 

with large and mid-cap stocks. Jena et al. (2021) think that the major contributor to total volatility was mid-cap index 

followed by the small- and large-cap. Wang et al. (2013) study the large- and small-cap stocks in twenty-three emerging 



Faniband et al., Indian Journal of Finance and Banking 13(1) (2023), 48-53 

 

50 

economies and detect that the international asset pricing model is applicable for most large- cap stocks, whereas it is not 

applicable for small-cap stocks. 

 

MATERIALS AND METHODS 
Data and Variables  

We empirically examine the impact of net sales, net profit, and EPS on stock returns. We use stocks included under NSE 

Large Cap100, NSE Mid Cap 100 and NSE Small Cap 100 Indices. These indices are composed of 100 companies. We 

select these indices because it reflects the overall state of the Indian stock market. For this paper, we consider quarterly data 

from June 2010 to March 2022. Since some firms in the LMS indices have missing data or are not listed in the 2010, the 

final sample size is 220. It includes 84, 70 and 66 companies from large, mid, and small caps respectively. The data of net 

sales, net profit, EPS, and stock prices are collected from the ProwessIQ CMIE database.  

The selection of the exploratory variables is based on the following reasons. First, the ultimate growth of a firm 

can be captured using net sales. Net sales is must because no firm can make any kind of profit in absence of net sales and 

that is the reason net sale is independent of profit. Further, an investor considers net sales to know how profitable the firm. 

Second, Net profit is the payoff for the risk assumed by the investor and the firm use it for its growth. It is believed that, if 

the net sales is backbone, net profit is lifeblood. Third, EPS serves the market price in fundamental analysis. Hence, higher 

the EPS, higher will be the market price.  

 

Methodology 

We employ the panel quantile regression model with fixed effect to study the impact of net sales, net profit, and EPS on 

stock returns in the Indian stock market. Quantile regression, proposed by Koenker & Bassett, (1978), is useful for 

investigating the asymmetric distribution of stock returns. This method is useful to find asymmetric aspects of stock returns 

and estimate coefficients of different quantiles of stock returns. It also allows us to understand heterogeneous effects of net 

sales, net profit, and EPS on the stock returns.  

 

The panel quantile regression model with fixed effect is written as follows: 

 

𝑄𝑦𝑖𝑗(𝜏|𝑥𝑖𝑗)=𝛼𝑖+𝑥𝑖𝑗
𝑇 𝛽 𝜏  𝑖=1,….,m; 𝑗=1,…,n  ------------------------------(i) 

 

In formula (1), α′s have a pure location shift impact on the conditional quantiles. The impact of the covariates xij are permitted 

to rely the quantile τ of interest. i is the index of individual and j is the index of time. m is the number of observations on 

the individual i. n is the number of observations on the time t. 

 

The following is the basic regression model. 

 

𝑅𝑁𝑖𝑡= 𝛼𝑖+  𝛽1𝑁𝑆𝑖𝑡+  𝛽2𝑁𝑃𝑖𝑡+  𝛽2𝑖𝐸𝑃𝑆𝑖𝑡+𝛾 𝜓𝑡+ µ𝑖𝑡 ------------------------------(ii) 

 

Where i =1, …N, t=1, …, T, N is the number of companies. T is the number of time. RNit denotes the stock returns for 

company i at time t. NS means net sales, NP refers to net profit and EPS refers to earnings per share. In the model, we 

include macroeconomic variables, inflation (Consumer Price Index), interest rates and exchange rate as the controlling 

variables.  

RESULTS AND DISCUSSIONS 

Our results are divided into three sub-sections. The first sub-section discusses the impact of firm-specific factors of large 

cap companies on large cap stock returns. The second sub-section shows the results about mid cap stocks and third sub-

section presents the sensitivity of small cap stock returns to net sales, net profit, and EPS of small cap companies. The results 

of the panel unit root tests presented in Table 1, 3 and 5 show that the variables are conclusively and consistently stationary 

at level. 

  

Firm-specific Factors and Stock Returns for Large Cap Stocks 

Table 2 reveals the effects of the firm-specific factors on stock returns of large cap companies. The quantile regression 

model estimated for 20th, 40th, 50th, 60th and 80th quantiles and we also compare our results with OLS. Our results confirm a 

substantial and negative impact of net sales on the large cap stock returns. This result is consistent with Budi & Davianti, 

(2022) who found the positive impact of net sales on stock return. It indicates that an increase in net sales decreases stock 

return. Further, net profit has a substantial and positive impact on stock return in OLS, 0.2 and 0.6 quantiles whereas, the 

impact is found to be insignificant 0.4 and median quantile. Moreover, the stock return is positively and significantly reacted 

to EPS as all the coefficients are substantial except 0.4. These results are not in line with (Sharma et al., 2015) who find that 

the above three variables do not affect stock returns of companies listed in NSE. 

 

Table 1. Panel unit root tests for large cap 

 
 Net Sales Net Profit EPS Share Return 

LLC   4.659 -5.601*** -10.537***  -30.125*** 

IPS   6.824 -10.030*** -14.904*** -31.287*** 



Faniband et al., Indian Journal of Finance and Banking 13(1) (2023), 48-53 

 

51 

ADF    159.475  513.211*** 608.362***  1234.500*** 

PP    271.681*** 938.693*** 1056.720***  1870.350*** 

Note: *** p<0.01, ** p<0.05 

 

Table 2. Panel quantile regression results for large cap 

 
 OLS 0.2 0.4 0.5 0.6 0.8 

C 1.095*** 

(0.005) 

-7.681*** 

(0.000) 

-0.115 

(0.680) 

2.482*** 

(0.000) 

5.418*** 

(0.000) 

12.479*** 

(0.000) 

Net Sales -5.510*** 
(0.009) 

-9.740*** 
(0.002) 

-3.860*** 
(0.040) 

-3.420*** 
(0.010) 

-3.540*** 
(0.007) 

-3.580*** 
(0.002) 

Net Profit  3.620* 

(0.064) 

9.060*** 

(0.000) 

2.750 

(0.138) 

2.110 

(0.107) 

2.300* 

(0.093) 

2.340 

(0.812) 

EPS 0.033*** 
(0.007) 

0.024* 
(0.095) 

0.006 
(0.552) 

0.018* 
(0.078) 

0.023*** 
(0.000) 

0.016*** 
(0.004) 

Note: *** p<0.01, ** p<0.05, * p<0.1 

 

Firm-specific Factors and Stock Returns for Mid Cap Stocks 

Table 4 documents the OLS and panel quantile regression results for mid cap companies. The effect of net sales is negative 

and substantial for OLS, bottom, and median quantiles, whereas no substantial effect is observed in the higher quantiles 

which indicates that the structure of dependence is asymmetric with dependence in the bottom tail and independence in the 

higher tail. Further, we observe that net profit and EPS have a positive and substantial impact on stocks returns. The 

coefficients of OLS and bottom quantiles are found to be significant. However, the median and upper quantile show an 

insignificant impact. 

 

Table 3. Panel unit root tests for mid cap 

 
 Net Sales Net Profit EPS Share Return 

LLC   2.655 -4.086*** -7.750***  -22.924*** 

IPS   3.396 -10.122*** -11.284*** -25.746*** 

ADF   169.964**  444.710***  441.650***  914.790*** 

PP   257.481***  851.354***  822.643***  1469.750*** 

Note: *** p<0.01, ** p<0.05 

 

Table 4. Panel quantile regression results for mid cap 

 
 OLS 0.2 0.4 0.5 0.6 0.8 

C 1.219*** 

(0.002) 

-9.448*** 

(0.000) 

-1.261*** 

(0.000) 

1.711*** 

(0.000) 

5.007*** 

(0.000) 

14.831*** 

(0.000) 

Net Sales -1.330*** 

(0.008) 

-3.660*** 

(0.000) 

-1.540*** 

(0.001) 

-7.830 

(0.207) 

-4.050 

(0.207) 

-2.730 

(0.682) 

Net Profit  8.041*** 

(0.004) 

0.000*** 

(0.006) 

0.000*** 

(0.000) 

6.560 

(0.545) 

2.370 

(0.545) 

-1.850 

(0.918) 

EPS 0.008* 

(0.077) 

0.006*** 

(0.000) 

0.000 

(0.922) 

0.005 

(0.538) 

0.009 

(0.538) 

0.004 

(0.109) 

Note: *** p<0.01, ** p<0.05 

 

Firm-specific Factors and Stock Returns for Small Cap Stocks 

Table 6 indicates the results for small cap companies. The net sales has a substantial and negative impact because the OLS 

and quantile regression coefficients (except 0.6) are statistically substantial. This result is in line with large cap and mid cap 

stocks. However, the results of net profit are not completely consistent with the large and mid-cap stocks because the OLS 

and the quantile regression coefficients are insignificant except 0.2. The effect of EPS has a positive and substantial effect 

at the OLS and 0.2, 0.4 and median quantiles.    
 

Table 5. Panel unit root tests for small cap 

 
 Net Sales Net Profit EPS Share Return 

LLC  -0.805 -4.692*** -7.340***  -20.094*** 

IPS   1.3123 -10.430*** -13.303*** -22.725*** 

ADF   180.254***  399.644***  470.248***  747.496*** 

PP   231.789***  870.510***  963.528***  1149.57*** 

Note: *** p<0.01, ** p<0.05 

  

Table 6. Panel quantile regression results for small cap 

 
 OLS 0.2 0.4 0.5 0.6 0.8 

C 2.564*** 
(0.000) 

-12.280*** 
(0.000) 

0.978** 
(0.035) 

5.334*** 
(0.000) 

5.007*** 
(0.000) 

18.290*** 
(0.000) 

Net Sales -0.000*** 

(0.000) 

-6.980*** 

(0.000) 

-9.770*** 

(0.000) 

-9.030*** 

(0.010) 

-4.051 

(0.207) 

-0.000** 

(0.018) 



Faniband et al., Indian Journal of Finance and Banking 13(1) (2023), 48-53 

 

52 

Net Profit  -0.000 

(0.102) 

0.000*** 

(0.006) 

4.090 

(0.736) 

-6.001 

(0.500) 

2.371 

(0.545) 

5.201 

(0.651) 

EPS 0.210*** 

(0.000) 

0.025*** 

(0.000) 

0.258*** 

(0.000) 

0.297*** 

(0.000) 

0.009 

(0.538) 

0.200 

(0.118) 

Note: *** p<0.01, ** p<0.05, * p<0.1 

 

CONCLUSIONS  

We study the impact of net sales, net profit, and EPS on stocks returns of LMS stocks using panel quantile regression for 

quarterly data. We report very some important results in this paper. First, net sales significantly and negatively affect across 

large, mid, and small cap stocks. Second, net profit and EPS have a substantial and positive impact. However, the 

coefficients are not significant across all quantiles. In a nutshell, the impact of the firm-specific factors on stock returns is 

not homogeneous across the large, mid, and small cap stocks implying that these factors do not influence stocks in a uniform 

way. The plausible reason may be that large, mid, and small cap companies share differences in terms of market 

capitalisation, growth potential and volatility. 

Our results could be advantageous for portfolio managers and investors. Knowing the long-run connection between 

firm specific factors and stock returns can be of extreme importance with regard to the adoption of efficient decisions in the 

LMS stocks. This can also help make better asset allocation/portfolio diversification for investors, mutual fund managers, 

and foreign institutional investors. So, those who invest in the LMS stocks should pay close attention to firm specific factors 

and diversify their portfolio accordingly. This study can be further extended to the impact of macro and non-macro-economic 

factors on stock returns of the LMS stocks. 

 

  
Author Contributions: Conceptualization, M.F. and P.J.; Methodology, M.F.; Software, M.F.; Validation, M.F.; Formal Analysis, M.F.; Investigation, 

M.F.; Resources, M.F. and P.J.; Data Curation, M.F.; Writing – Original Draft Preparation, M.F.; Writing – Review & Editing, M.F., P.J. and K.M.; 

Visualization, M.F., P.J. and K.M.; Supervision, M.F., P.J. and K.M.; Project Administration, M.F. and P.J.; Funding Acquisition, M.F., P.J. and K.M. 
Authors have read and agreed to the published version of the manuscript. 

Institutional Review Board Statement: Ethical review and approval were waived for this study, due to that the research does not deal with vulnerable 

groups or sensitive issues. 

Funding: The authors received no direct funding for this research. 

Acknowledgments: Not applicable. 

Informed Consent Statement: Informed consent was obtained from all subjects involved in the study. 

Data Availability Statement: The data presented in this study are available on request from the corresponding author. The data are not publicly available 

due to restrictions. 

Conflicts of Interest: The authors declare no conflict of interest.                                                                                                                                                                                                                                   

 

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