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Abstract
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Article Information:
The Relationship between Operational Financial Ratios and Firm’s Abnormal Stock Returns
Abdolreza Ghasempour and Mehdi Ghasempour
Corresponding Author: Abdolreza Ghasempour
Submitted: January 29, 2013
Accepted: February 22, 2013
Published: August 20, 2013 |
Abstract:
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The investment in stock market and other stocks issued by the firms require sufficient knowledge and understanding of the financial reports and information of the business firms. This study aims to investigate the effects of three types of financial ratios, i.e., profitability/liquidity, continuity and efficiency of business firms over the investors’ abnormal stock returns. To achieve the aim of the study, the ratios were categorized into two groups namely fundamental ratios and risk-proxy ratios. The financial ratios make a relationship between various economic variables of a firm and make it possible to compare financial information of various firms. The financial ratios also make it easier to evaluate the firm’s performance through examining the relationship between the variables of the financial statements. The results of this study showed that there is a significant relationship between the most fundamental accounting variables, i.e., return on assets, operational cash flow, changes in return on assets, changes in net profit margin and total asset turnover. The existence of this relationship shows the high dependence of abnormal stock returns on its intrinsic fundamental variables. However, there was not any relationship the liquidity ratio and stock returns. Moreover, there was not any significant relationship between the majority of risk proxy variables i.e., the ratio of accruals, operating leverage and stock issuance indicating the independence of abnormal stock returns from risk proxy variables.
Key words: Abnormal stock returns, activity ratios, operational financial ratios, profitability, performance ratios, ,
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Cite this Reference:
Abdolreza Ghasempour and Mehdi Ghasempour, . The Relationship between Operational Financial Ratios and Firm’s Abnormal Stock Returns. Research Journal of Applied Sciences, Engineering and Technology, (15): 2839-2845.
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ISSN (Online): 2040-7467
ISSN (Print): 2040-7459 |
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