Macroeconomic and Financial Determinants of Equity Market Value: Evidence from the UK Listed Firms

Abstract

This study presents a comprehensive analysis of the key factors affecting the market value of equity securities by integrating macroeconomic variables and financial indicators within a panel data framework. Data were collected from 40 listed British firms from 2015 to 2024. The research utilizes fixed effects and robust regression models to examine the relationship between market valuation and variables such as book value per share, earnings per share, dividends per share, debt-to-equity ratio, return on equity, inflation, interest rate, exchange rate, and gross domestic product growth. The results indicate that dividends per share, earnings per share, return on equity, and book value per share each exert a significant and positive influence on market value. Conversely, macroeconomic instability, including fluctuations in exchange rates and elevated interest rates, negatively impacts equity valuations. Robustness checks and diagnostic tests confirm the stability of the models. This study contributes to the literature by empirically validating both modern and classical valuation theories and offering practical implications for policymakers, investors, and corporate managers. Limitations are acknowledged, and directions for future research are proposed, including the incorporation of non-financial variables and the adoption of dynamic modeling approaches.

Keywords: Equity Valuation, Macroeconomic Variables, Financial Indicators