RELATIONSHIP BETWEEN PROFITABILITY RATIOS AND STOCK PRICES: AN EMPIRICAL ANALYSIS ON BIST-100

Year 2017, Volume: 6 Issue: 1, 1 - 10, 30.12.2017

Ali Bayrakdaroglu , Cagatay Mirgen , Ezgi Kuyu

https://doi.org/10.17261/Pressacademia.2017.737

Abstract

Purpose-
Investors benefit from a large number of information resources in order to
maximize their earnings from financial instruments they have invested. One of
the resources that investors benefit from is financial ratio information which
they obtain by analyzing firms' financial statements. Accordingly, the aim of
this study is to determine if there is a relationship between stock prices and
profitability ratios which take place in financial ratios and also to analyze
if profitability ratios can be directive indicator while investing in stocks
with the aim of maximizing earnings. 

Methodology-
In this research, panel data regression analysis was applied between lagged
stock prices of firms in ISE100 and their profitability ratios including gross
profit margin, operating profit margin, net profit margin, return on asset and
return on equity. Once we had decided that fixed effects model is convenient
for our research, the model was estimated by Driscoll-Kraay Estimator which
produce robust standard errors. 

Findings-
According to result of our analysis, it was determined that there is a positive
linear relationship between firms' net profit margin and their stock
prices. 

Conclusion-
It was concluded that while making investment decisions, taking net profit
margin into consideration can contribute to investors' earnings.

 

Keywords

Stock Prices, Panel Data Regression, Profitability Ratios, ISE100, Driscoll and Kraay Estimator

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