(In)Significance of Financial Indicators as Stock Price Determinants- The Role of Value-Oriented Vs. Traditional Kpis in the Context of Shareholder Return
Journal Title: International Journal of Applied Research in Management and Economics - Year 2021, Vol 4, Issue 3
Abstract
As comprehensively discussed by prominent authors such as Fama or Schiller, stock return research is ever since its origin of major importance for the academic and business community given that decision-relevant information is analyzed and discussed, which can be used for investment decisions, to guide and improve corporate performance, to upgrade accounting standards, and disclosure requirements. In summary, partly inconclusive results of the past, the faster-changing environment, and the focus on the pharmaceutical industry motivate further research regarding the subject of stock return analysis. In this regard, this paper provides empirical evidence to the question of which financial indicators are significantly related to stock returns. First, it was theoretically argued that a meaningful indicator of operating and strategic performance should be highly associated with stock returns, given that management decisions that change shareholder wealth should simultaneously cause corresponding stock returns. Based on this assumption, this research analyzed several traditional indicators and EVA (as reported by Bloomberg). Second, the relationship between these financial determinants and stock returns was studied using the data of 29 pharmaceutical companies in a five-year period. Given the dataset's characteristics, a panel regression was the most appropriate method to enlighten the questions of interest. Finally, as a result of this study, empirical evidence shows that several financial indicators such as Equity PS, Turnover PS, or Cash PS are helpful to explain shareholder wealth but only to a very limited extend. Nevertheless, as outlined in the course of this paper, in terms of management control, the advantage of value-oriented indicators should not be denied, as this may contribute to less budgetary slack and better incentive systems.
Authors and Affiliations
Gianfranco Marotta,Philippe Krahnhof,Roland Wolf,
Keywords
Related Articles
- EP ID EP745306
- DOI -
- Views 1
- Downloads 0
Influencing Factors on Modest Fashion Market: A Case Study
The modest fashion from the Islamic point of view is an emerging phenomenon that offers non-adherent and non-transparent clothes that cover a large part of the body respecting the religious dictates and it is seen as a g...
Correlation of European and U.S. Technology and Financial Stocks during COVID-19 Pandemic
In 2022 stock markets around the world lost some of their value, led by high-growth sectors, sectors that tend to show a significantly higher growth rate than the average market. At the same time the financial sector sho...
Environmental Regulation and High-quality Economic Development in the Yangtze River Delta Urban Agglomeration
China's economy has been under tremendous pressure due to the decoupling from the United States, leading to a prolonged economic downturn. In response, the Political Bureau of the CPC Central Committee has introduced the...
Parental Awareness and Attitudes of Digital Media Advertising to Children
Children today are very comfortable using electronic technology, Internet, on line games and digital platforms. The dominant portion of the on line content is consumed via their parentâs technological devices. Knowing...
Investigating the Role of Balance of Population and Economic Growth in Achieving Sustainable Economic Growth (Case Study: Upper-Middle Income Countries during 1985 to 2016)
Contrary to the neoclassical view, the population and its components are one of the factors affecting long-term economic growth. Some studies have pointed to the negative impact of population growth and others on its pos...