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The Effect of Financial Ratios on the Stock Price Development

Author

Listed:
  • Tomáš Pražák

    (Department of Finance and Accounting, School of Business Administration, Silesian University)

  • Daniel Stavárek

    (Department of Finance and Accounting, School of Business Administration, Silesian University)

Abstract

This study examines the effect of the main microeconomic factors on the stock prices of select energy industry companies listed and traded on the Prague Stock Exchange and Warsaw Stock Exchange. The microeconomic factors are based on the financial situation in companies. The financial ratios (debt/equity ratio, liquidity ratio, financial leverage ratio, return on equity ratio and return on investment ratio) are gained from the financial statements. The existence of relationship between stock prices and financial ratios is tested with the Generalized Method of Moments. During the period 2006 - 2015 we revealed a positive impact of financial leverage ratio on stock prices in both countries and a negative effect of liquidity ratio on stock prices in both countries.

Suggested Citation

  • Tomáš Pražák & Daniel Stavárek, 2017. "The Effect of Financial Ratios on the Stock Price Development," Working Papers 0043, Silesian University, School of Business Administration.
    • Handle: RePEc:opa:wpaper:0043
    as

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    References listed on IDEAS

    as
    1. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    2. Schrimpf, Andreas, 2010. "International stock return predictability under model uncertainty," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1256-1282, November.
    3. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    4. Panagiotis E. Dimitropoulos & Dimitrios Asteriou, 2009. "The value relevance of financial statements and their impact on stock prices: Evidence from Greece," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(3), pages 248-265, March.
    5. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    6. Bradshaw, Mark T. & Richardson, Scott A. & Sloan, Richard G., 2006. "The relation between corporate financing activities, analysts' forecasts and stock returns," Journal of Accounting and Economics, Elsevier, vol. 42(1-2), pages 53-85, October.
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    Cited by:

    1. Sufian Radwan Al-Manaseer, 2020. "Impact of Market Ratios on the Stock Prices: Evidence from Jordan," International Business Research, Canadian Center of Science and Education, vol. 13(4), pages 1-92, April.

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    More about this item

    Keywords

    Financial ratios; stock prices; regression analysis; Czech Republic; Poland; energy industry;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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