Research Article | OPEN ACCESS
The Relationship between Operational Financial Ratios and Firm's Abnormal Stock Returns
1Abdolreza Ghasempour and 2Mehdi Ghasempour
1Bardsir Branch, Islamic Azad University, Kerman, Iran
2Shahid Bahonar University of Kerman, Iran
Research Journal of Applied Sciences, Engineering and Technology 2013 15:2839-2845
Received: January 29, 2013 | Accepted: February 22, 2013 | Published: August 20, 2013
Abstract
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.
Keywords:
Abnormal stock returns, activity ratios, operational financial ratios, profitability, performance ratios,
Competing interests
The authors have no competing interests.
Open Access Policy
This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
Copyright
The authors have no competing interests.
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ISSN (Online): 2040-7467
ISSN (Print): 2040-7459 |
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