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THE RELATIONSHIP BETWEEN FINANCIAL EFFICIENCY RATIOS AND STOCK PRICES: AN EMPIRICAL INVESTIGATION ON INSURANCE COMPANIES LISTED IN BORSA ISTANBUL

Year 2015, Volume: 7 Issue: 12, 1 - 16, 20.04.2015
https://doi.org/10.14784/jfrs.53994

Abstract

It is a common perception that efficiency is an important issue regardless of industry. A sound and highly functional insurance industry serves as a crucial financing channel in an economy. At this aspect, this study aims to examine the relationship between the financial efficiency ratios and stock prices of insurance firms, whose stocks are publicly traded in Borsa Istanbul. The study is performed on quarterly data set. The sample period covers 2005Q1 and 2012Q4. Taking three sets of efficiency ratios, which are namely cost, revenue and profit efficiency, as proxy, we run a regression analysis against stock prices. This study is the first, best to our knowledge, in examining the interaction between Turkish insurance firms’ efficiency ratios and their stock prices. Our findings suggest that all of employed models confirm statistically significant relationships between the ratios and stock prices. Among the three ratio groups, profitability ratios emerge as the best fit models. The results carry important implications for insurance firms as well as investors

References

  • ABIDIN, Zaenal and CABANDA, Emilyn (2011), ‘‘Efficiency of Non-Life Insurance in Indonesia’’, Journal of Economics, Business and Accountancy Ventura, 14(3), pp.197-202.
  • AJLOUNI, Moh’d M. and TOBAISHAT, Sinan (2010), ‘‘The Effect of Technical Efficiency in Insurance Companies on Stock Performance: Data Envelopment Analysis (DEA) Evidence from Jordanian Companies Listed in Amman Stock Exchange (ASE) During the Period (2000-2006)’’, International Journal of Strategic Management, 10(1), Available from http://www.freepatentsonline.com/article/ International-Journal-Strategic-Management/ 237305845.html [Accessed 21 March 2013].
  • AYDEMIR, Oguzhan, OGEL, Serdar & DEMIRTAS, Gokhan (2012), ‘‘Hisse Senedi Fiyatlarının Belirlenmesinde Finansal Oranların Rolu’’, Yonetim ve Ekonomi: Celal Bayar Universitesi, 19(2), pp.277-288.
  • BARROS, Carlos Pestana and OBIJIAKU, Echika Lemechi (2007), ‘‘Technical Efficiency of Nigerian Insurance Companies’’, School of Economics and Management, Technical University of Lisbon, Department of Economics, Working Papers, WP/018/2007/DE/UECE, pp.1-32.
  • BHANDARI, Laxmi Chand (1988), ‘‘Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence’’, Journal of Finance, 63(2), pp.507-528.
  • CAGIL, Gulcan and KARABAY, Melisa Erdilek (2010), ‘‘An Implementation towards the Evaluation of Financial Performance in Turkish Insurance Sector at Global Crises Scale’’, International Journal of Economics and Finance Studies, 2(1), ISSN: 1309-8055 (Online).
  • CHU, Sing Fat and LIM, Guan Hua (1998), ‘‘Share Performance and Profit Efficiency of Banks in an Oligopolistic Market: Evidence from Singapore’’, Journal of Multinational Financial Management, 8, pp.155-168.
  • CHOWDHURY, Anup and CHOWDHURY, Suman Paul (2010), ‘‘Impact of Capital Structure on Firm’s Value: Evidence from Bangladesh’’, Business and Economic Horizons, 3(3), pp.111-122.
  • CIFTCI, Hakkı (2004), ‘‘Turk Sigorta Sektorunun Sorunlari, DEA Analizi ile Turk Sigorta Sirketlerinin Etkinlik Duzeylerinin Belirlenmesi’’, Cukurova Universitesi Sosyal Bilimler Enstitusu Dergisi, 13(1), pp.121-149.
  • CUMMINS, J. David, WEISS, Mary A., XIE, Xiaoying and ZI, Hongmin (2010), ‘‘Economies of Scope in Financial Services: A DEA Efficiency Analysis of the US Insurance Industry’’, Journal of Banking and Finance, 34(7), pp.1525-1539.
  • CUMMINS, J. David, WEISS, Mary A. (1993), ‘‘Measuring Cost Efficiency in the Property-Liability Insurance Industry’’, Journal of Banking and Finance, 17, pp.463-481.
  • CUMMINS, J. David, TENNYSON, Sharon and WEISS, Mary A. (1998), ‘‘Consolidation and Efficiency in the U.S. Life Insurance Industry’’, Federal Reserve Bank of Philadelphia Working Papers, 98-18.
  • DAVIS, Harry Zvi and PELES, Yoram C. (1993), ‘‘Measuring Equilibrating Forces of Financial Ratios’’, The Accounting Review, 68(4), pp.725-747.
  • DIACON, S. R., STARKEY, K. and O’BRIEN, C. (2002), ‘‘Size and Efficiency in European Long-Term Insurance Companies: An International Comparison’’, The Geneva Papers on Risk and Insurance, 27(3), pp.444-466.
  • FERNANDEZ, Ana Isabel, GASCON, Fernando & GONZALEZ, Eduardo (2002), ‘‘Economic Efficiency and Value Maximization in Banking Firms’’, The 7th European Workshop on Efficiency and Productivity Analysis.
  • FEWINGS, David R. (1975), ‘‘The Impact of Corporate Growth on the Risk of Common Stocks’’, Journal of Finance, 30(2), pp.525-531.
  • HAMADA, Robert S. (1969), ‘‘Portfolio Analysis, Market Equilibrium and Corporate Finance’’, Journal of Finance, 24(1), pp.13-32.
  • HAMADA, Robert S. (1972), ‘‘The Effect of the Firm’s Capital Structure on the Systematic Risk of Common Stock’’, Journal of Finance, 26(2), pp.425-452.
  • HORRIGAN, James O. (1983), ‘‘Methodological Implications of Non-Normally Distributed Financial Ratios: A Comment’’, Journal of Business Finance and Accounting, 10(4), pp.683-689.
  • INSURANCE SUPERVISION BOARD, (2012), Insurance and Private Pension Activities, Insurance Supervision Board of Turkish Republic Prime Ministry Under Secretary of Treasury. Annual Report 2012.
  • ISMAIL, Norashikin, ALHABSHI, Syed Othman and BACHA, Obiyathulla (2011), ‘‘Cost Efficiency and Investment Performance: Mutual and Stock Form in Malaysian Insurance Industry’’, Working paper, International Centre for Education in Islamic Finance (INCEIF). Available from http://www. wbiconpro.com/355-Norashikin.pdf [Accessed 23 April 2013].
  • KASMAN, Adnan and TURGUTLU, Evrim (2009), ‘‘Total Factor Productivity in the Turkish Insurance Industry’’, International Journal of the Economics of Business, 16(2), pp.239-247.
  • KAYALI, Cevdet Alptekin (2007), ‘‘2000-2006 Doneminde Turkiye’de Faaliyet Gosteren Sigorta Sirketlerinin Etkinlik Degerlendirmesi’’, Yonetim ve Ekonomi: Celal Bayar Universitesi, 14(2), pp.103-115.
  • KILICKAPLAN, Serdar and KARPAT, Gaye (2004), ‘‘Turkiye Hayat Sigortasi Sektorunde Etkinligin Incelenmesi’’, DEU IIBF Dergisi, 19(1), pp.1-14.
  • KIRKWOOD, Joshua and NAHM, Daehoon (2006), ‘‘Australian Banking Efficiency and and Its Relation to Stock Returns’’, The Economic Record, 82(258), pp.253-267.
  • MARTIKAINEN, Teppo (1993), ‘‘Stock Returns and Classification Pattern of Firm-Specific Financial Variables: Empirical Evidence with Finnish Data’’, Journal of Business Finance & Accounting, 20(4), pp.537-557.
  • McDONALD, Bill and MORRIS, Michael H. (1984), ‘‘The Statistical Validity of the Ratio Method in Financial Analysis: An Empirical Examination’’, Journal of Business Finance and Accounting, 11(1), pp.89-97.
  • McDONALD, Bill and MORRIS, Michael H. (1985), ‘‘The Functional Specification of Financial Ratios: An Empirical Examination’’, Accounting and Business Research, 15(59), pp.223-228.
  • PASIOURAS, Fotios, LIADAKI, Aggeliki & ZOPOUNIDIS, Constantin (2008), ‘‘Bank Efficiency and Share Performance: Evidence from Greece’’, Applied Financial Economics, 18, pp.1121-1130.
  • SALMI, Timo and MARTIKAINEN, Teppo (1994), ‘‘A Review of the Theoretical and Empirical Basis of Financial Ratio Analysis’’, The Finnish Journal of Business Economics, 4(94), pp.426-448.
  • SINHA, Ram Pratap and CHATTERJEE, Biswajit (2009), ‘‘Are Indian Life Insurance Companies Cost Efficient?’’, Electronic copy available at SSRN: http://dx.doi.org/10.2139/ssrn.1391904 [Accessed 22 May 2013].
  • TONE, Kaoru (2002), ‘‘A Strange Case of the Cost and Allocative Efficiencies in DEA’’, Journal of the Operational Research Society, 53, pp.1225-1231.
  • TURGUTLU, Evrim, KOK, Recep and KASMAN, Adnan (2007), ‘‘Turk Sigortacılık Sirketlerinde Etkinlik: Deterministik ve Sans Kısıtlı Veri Zarflama Analizi’’, Iktisat Isletme ve Finans, 22(251), pp.85-102.
  • TURKAN, Semra, POLAT, Esra and GUNAY, Suleyman (2012), ‘‘The Efficiency Analysis of Non-Life Insurance Companies Active in Turkey’’, Zagreb International Review of Economics and Business, 15(2), pp.1-14.

FİNANSAL ETKİNLİK ORANLARI VE HİSSE SENEDİ FİYATLARI ARASINDAKİ İLİŞKİ: BORSA ISTANBUL’DA İŞLEM GÖREN SİGORTA ŞİRKETLERİ ÜZERİNE AMPİRİK BİR ARAŞTIRMA

Year 2015, Volume: 7 Issue: 12, 1 - 16, 20.04.2015
https://doi.org/10.14784/jfrs.53994

Abstract

Hangi sektörde olursa olsun etkinliğin önemli bir konu olduğu genel kabul gören bir anlayıştır. İyi işleyen sağlıklı bir sigortacılık sektörü bir ekonomi için hayati bir finansman kanalı işlevini görecektir. Buradan hareketle bu çalışma, hisseleri Borsa İstanbul’da işlem gören sigorta şirketlerinin hisse senedi fiyatları ile finansal etkinlik oranları arasındaki ilişkiyi incelemeyi amaçlamaktadır. Çalışma çeyrek dönemlik veriler üzerinde yürütülmüştür. Örneklem dönemi 2005Ç1 ve 2012Ç4 arasını içermektedir. Maliyet, gelir ve kârlılık etkinliği olmak üzere üç grup etkinlik oranları ölçü alınarak hisse senedi fiyatlarına karşı bir regresyon analizi gerçekleştirilmiştir. Bilindiği kadarıyla, Türkiye’deki sigorta firmalarının etkinlik oranları ve hisse senedi fiyatları arasındaki ilişkiyi incelemesi itibariyle çalışma literatürde bir ilki temsil etmektedir. Ulaşılan bulgular uygulanan bütün modellerde oranlar ve hisse fiyatları arasında istatistiksel olarak anlamlı ilişkilerin varlığına işaret etmektedir. Söz konusu üç oran grubundan en güçlü modellerin, kârlılık oranları olduğu görülmüştür. Bulgular sigorta şirketlerinin yanı sıra yatırımcılar açısından da önemli sonuçlar içermektedir

References

  • ABIDIN, Zaenal and CABANDA, Emilyn (2011), ‘‘Efficiency of Non-Life Insurance in Indonesia’’, Journal of Economics, Business and Accountancy Ventura, 14(3), pp.197-202.
  • AJLOUNI, Moh’d M. and TOBAISHAT, Sinan (2010), ‘‘The Effect of Technical Efficiency in Insurance Companies on Stock Performance: Data Envelopment Analysis (DEA) Evidence from Jordanian Companies Listed in Amman Stock Exchange (ASE) During the Period (2000-2006)’’, International Journal of Strategic Management, 10(1), Available from http://www.freepatentsonline.com/article/ International-Journal-Strategic-Management/ 237305845.html [Accessed 21 March 2013].
  • AYDEMIR, Oguzhan, OGEL, Serdar & DEMIRTAS, Gokhan (2012), ‘‘Hisse Senedi Fiyatlarının Belirlenmesinde Finansal Oranların Rolu’’, Yonetim ve Ekonomi: Celal Bayar Universitesi, 19(2), pp.277-288.
  • BARROS, Carlos Pestana and OBIJIAKU, Echika Lemechi (2007), ‘‘Technical Efficiency of Nigerian Insurance Companies’’, School of Economics and Management, Technical University of Lisbon, Department of Economics, Working Papers, WP/018/2007/DE/UECE, pp.1-32.
  • BHANDARI, Laxmi Chand (1988), ‘‘Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence’’, Journal of Finance, 63(2), pp.507-528.
  • CAGIL, Gulcan and KARABAY, Melisa Erdilek (2010), ‘‘An Implementation towards the Evaluation of Financial Performance in Turkish Insurance Sector at Global Crises Scale’’, International Journal of Economics and Finance Studies, 2(1), ISSN: 1309-8055 (Online).
  • CHU, Sing Fat and LIM, Guan Hua (1998), ‘‘Share Performance and Profit Efficiency of Banks in an Oligopolistic Market: Evidence from Singapore’’, Journal of Multinational Financial Management, 8, pp.155-168.
  • CHOWDHURY, Anup and CHOWDHURY, Suman Paul (2010), ‘‘Impact of Capital Structure on Firm’s Value: Evidence from Bangladesh’’, Business and Economic Horizons, 3(3), pp.111-122.
  • CIFTCI, Hakkı (2004), ‘‘Turk Sigorta Sektorunun Sorunlari, DEA Analizi ile Turk Sigorta Sirketlerinin Etkinlik Duzeylerinin Belirlenmesi’’, Cukurova Universitesi Sosyal Bilimler Enstitusu Dergisi, 13(1), pp.121-149.
  • CUMMINS, J. David, WEISS, Mary A., XIE, Xiaoying and ZI, Hongmin (2010), ‘‘Economies of Scope in Financial Services: A DEA Efficiency Analysis of the US Insurance Industry’’, Journal of Banking and Finance, 34(7), pp.1525-1539.
  • CUMMINS, J. David, WEISS, Mary A. (1993), ‘‘Measuring Cost Efficiency in the Property-Liability Insurance Industry’’, Journal of Banking and Finance, 17, pp.463-481.
  • CUMMINS, J. David, TENNYSON, Sharon and WEISS, Mary A. (1998), ‘‘Consolidation and Efficiency in the U.S. Life Insurance Industry’’, Federal Reserve Bank of Philadelphia Working Papers, 98-18.
  • DAVIS, Harry Zvi and PELES, Yoram C. (1993), ‘‘Measuring Equilibrating Forces of Financial Ratios’’, The Accounting Review, 68(4), pp.725-747.
  • DIACON, S. R., STARKEY, K. and O’BRIEN, C. (2002), ‘‘Size and Efficiency in European Long-Term Insurance Companies: An International Comparison’’, The Geneva Papers on Risk and Insurance, 27(3), pp.444-466.
  • FERNANDEZ, Ana Isabel, GASCON, Fernando & GONZALEZ, Eduardo (2002), ‘‘Economic Efficiency and Value Maximization in Banking Firms’’, The 7th European Workshop on Efficiency and Productivity Analysis.
  • FEWINGS, David R. (1975), ‘‘The Impact of Corporate Growth on the Risk of Common Stocks’’, Journal of Finance, 30(2), pp.525-531.
  • HAMADA, Robert S. (1969), ‘‘Portfolio Analysis, Market Equilibrium and Corporate Finance’’, Journal of Finance, 24(1), pp.13-32.
  • HAMADA, Robert S. (1972), ‘‘The Effect of the Firm’s Capital Structure on the Systematic Risk of Common Stock’’, Journal of Finance, 26(2), pp.425-452.
  • HORRIGAN, James O. (1983), ‘‘Methodological Implications of Non-Normally Distributed Financial Ratios: A Comment’’, Journal of Business Finance and Accounting, 10(4), pp.683-689.
  • INSURANCE SUPERVISION BOARD, (2012), Insurance and Private Pension Activities, Insurance Supervision Board of Turkish Republic Prime Ministry Under Secretary of Treasury. Annual Report 2012.
  • ISMAIL, Norashikin, ALHABSHI, Syed Othman and BACHA, Obiyathulla (2011), ‘‘Cost Efficiency and Investment Performance: Mutual and Stock Form in Malaysian Insurance Industry’’, Working paper, International Centre for Education in Islamic Finance (INCEIF). Available from http://www. wbiconpro.com/355-Norashikin.pdf [Accessed 23 April 2013].
  • KASMAN, Adnan and TURGUTLU, Evrim (2009), ‘‘Total Factor Productivity in the Turkish Insurance Industry’’, International Journal of the Economics of Business, 16(2), pp.239-247.
  • KAYALI, Cevdet Alptekin (2007), ‘‘2000-2006 Doneminde Turkiye’de Faaliyet Gosteren Sigorta Sirketlerinin Etkinlik Degerlendirmesi’’, Yonetim ve Ekonomi: Celal Bayar Universitesi, 14(2), pp.103-115.
  • KILICKAPLAN, Serdar and KARPAT, Gaye (2004), ‘‘Turkiye Hayat Sigortasi Sektorunde Etkinligin Incelenmesi’’, DEU IIBF Dergisi, 19(1), pp.1-14.
  • KIRKWOOD, Joshua and NAHM, Daehoon (2006), ‘‘Australian Banking Efficiency and and Its Relation to Stock Returns’’, The Economic Record, 82(258), pp.253-267.
  • MARTIKAINEN, Teppo (1993), ‘‘Stock Returns and Classification Pattern of Firm-Specific Financial Variables: Empirical Evidence with Finnish Data’’, Journal of Business Finance & Accounting, 20(4), pp.537-557.
  • McDONALD, Bill and MORRIS, Michael H. (1984), ‘‘The Statistical Validity of the Ratio Method in Financial Analysis: An Empirical Examination’’, Journal of Business Finance and Accounting, 11(1), pp.89-97.
  • McDONALD, Bill and MORRIS, Michael H. (1985), ‘‘The Functional Specification of Financial Ratios: An Empirical Examination’’, Accounting and Business Research, 15(59), pp.223-228.
  • PASIOURAS, Fotios, LIADAKI, Aggeliki & ZOPOUNIDIS, Constantin (2008), ‘‘Bank Efficiency and Share Performance: Evidence from Greece’’, Applied Financial Economics, 18, pp.1121-1130.
  • SALMI, Timo and MARTIKAINEN, Teppo (1994), ‘‘A Review of the Theoretical and Empirical Basis of Financial Ratio Analysis’’, The Finnish Journal of Business Economics, 4(94), pp.426-448.
  • SINHA, Ram Pratap and CHATTERJEE, Biswajit (2009), ‘‘Are Indian Life Insurance Companies Cost Efficient?’’, Electronic copy available at SSRN: http://dx.doi.org/10.2139/ssrn.1391904 [Accessed 22 May 2013].
  • TONE, Kaoru (2002), ‘‘A Strange Case of the Cost and Allocative Efficiencies in DEA’’, Journal of the Operational Research Society, 53, pp.1225-1231.
  • TURGUTLU, Evrim, KOK, Recep and KASMAN, Adnan (2007), ‘‘Turk Sigortacılık Sirketlerinde Etkinlik: Deterministik ve Sans Kısıtlı Veri Zarflama Analizi’’, Iktisat Isletme ve Finans, 22(251), pp.85-102.
  • TURKAN, Semra, POLAT, Esra and GUNAY, Suleyman (2012), ‘‘The Efficiency Analysis of Non-Life Insurance Companies Active in Turkey’’, Zagreb International Review of Economics and Business, 15(2), pp.1-14.
There are 34 citations in total.

Details

Primary Language English
Journal Section Makaleler
Authors

Rafet Aktaş

Seyfettin Ünal

Publication Date April 20, 2015
Submission Date April 20, 2015
Published in Issue Year 2015 Volume: 7 Issue: 12

Cite

APA Aktaş, R., & Ünal, S. (2015). THE RELATIONSHIP BETWEEN FINANCIAL EFFICIENCY RATIOS AND STOCK PRICES: AN EMPIRICAL INVESTIGATION ON INSURANCE COMPANIES LISTED IN BORSA ISTANBUL. Finansal Araştırmalar Ve Çalışmalar Dergisi, 7(12), 1-16. https://doi.org/10.14784/jfrs.53994