Are Financial Ratios Able to Predict Bank Stock Prices During the COVID-19 Pandemic?
DOI:
10.33395/owner.v8i2.1951Keywords:
Bank Performance, Bank Stock Price, COVID-19, Financial Ratio, Fundamental AnalysisAbstract
Fundamental analysis, such as financial ratios, is important to ensure capital markets move efficiently. This analysis represents 69% of the variation in stock prices in the capital market. However, fundamental analysis has not been widely carried out because expertise is needed to analyze qualitative and quantitative data from company characteristics that underlie the movement of a stock. In 2020 – 2022, bank performance experienced fluctuations due to the Covid-19 pandemic which caused bank share prices to also fluctuate. On the other hand, banks have an important role as intermediary institutions or intermediaries to support the funding needs of the real sector or the business world. However, previous research on fundamental analysis largely excluded companies in the financial sector. Therefore, this article aims to find out whether financial ratios are able to predict bank share prices during the Covid-19 pandemic. There are five financial ratios used in this research, namely loan loss provision ratio, total capital ratio, profit margin ratio, current ratio, and solvency ratio. The population in this study are financial companies listed on the Indonesia Stock Exchange for the period 2020 - 2022. The sample was selected using a purposive sampling method and obtained 38 companies and 114 observations. The results of multiple regression analysis show that the loan loss provision ratio has a significant negative effect and the total capital ratio has a significant positive effect on bank share prices. Meanwhile, the net profit margin ratio, current ratio and solvency ratio do not have a significant effect on bank share prices. This research has implications for encouraging banks to improve disclosure policies and encouraging investors to hone fundamental analysis skills to reduce mispricing and make markets more efficient.
Downloads
Plum-X Analityc
References
Abarbanell, J. S., & Bushee, B. J. (1997). Fundamental Analysis, Future Earnings, and Stock Prices. Journal of Accounting Research, 35(1), 1. https://doi.org/10.2307/2491464
Abbas, F., & Ali, S. (2020). Dynamics of bank capital ratios and risk-taking: Evidence from US commercial banks. Cogent Economics and Finance, 8(1). https://doi.org/10.1080/23322039.2020.1838693
Agnese, P., Capuano, P., & Porretta, P. (2022). Is Unconventional Monetary Policy Mediated By Banks’ Liquidity and Solvency Ratios? Evidence From the European Banking Sector. Journal of Governance and Regulation, 11(4), 68–77. https://doi.org/10.22495/jgrv11i4art7
Ahmed, A. S., Takeda, C., & Thomas, S. (1999). Bank loan loss provisions: A reexamination of capital management, earnings management and signaling effects. Journal of Accounting and Economics, 28(1), 1–25. https://doi.org/10.1016/S0165-4101(99)00017-8
Akinroluyo, B. I., & Dimgba, C. (2022). Bank Liquidity Ratio and Return on Equity of Nigeria Deposit Money Bank in Nigeria. International Journal of Management & Entrepreneurship Research, 4(1). https://doi.org/10.51594/ijmer.v4i1.283
Alhadab, M., & Al-Own, B. (2019). Earnings management and equity incentives: evidence from the European banking industry. International Journal of Accounting and Information Management, 27(2). https://doi.org/10.1108/IJAIM-08-2017-0094
Almeida, J., & Gonçalves, T. C. (2023). A systematic literature review of investor behavior in the cryptocurrency markets. In Journal of Behavioral and Experimental Finance (Vol. 37). https://doi.org/10.1016/j.jbef.2022.100785
Anbalagan, T., & Maheswari, S. U. (2015). Classification and prediction of stock market index based on Fuzzy Metagraph. Procedia Computer Science, 47(C), 214–221. https://doi.org/10.1016/j.procs.2015.03.200
Anshori, M., & Iswati, S. (2017). Metodologi Penelitian Kuantitatif. Airlangga University Press. https://books.google.co.id/books?hl=en&lr=&id=ltq0DwAAQBAJ&oi=fnd&pg=PR8&dq=variabel+penelitian+kuantitatif&ots=gLkOsmBU7m&sig=D_mwyRzRetoEePWr3gHBgPuLgdg&redir_esc=y#v=onepage&q=variabel penelitian kuantitatif&f=false
Araujo, R. C. da C., & Machado, M. A. V. (2018). Book-to-Market Ratio, return on equity and Brazilian Stock Returns. RAUSP Management Journal, 53(3), 324–344. https://doi.org/10.1108/RAUSP-04-2018-001
Assous, H. F. (2022). Saudi Green Banks and Stock Return Volatility: GLE Algorithm and Neural Network Models. Economies, 10(10). https://doi.org/10.3390/economies10100242
Beatty, A. L., Ke, B., & Petroni, K. R. (2002). Earnings management to avoid earnings declines across publicly and privately held banks. Accounting Review, 77(3). https://doi.org/10.2308/accr.2002.77.3.547
Bitar, M., Pukthuanthong, K., & Walker, T. (2018). The effect of capital ratios on the risk, efficiency and profitability of banks: Evidence from OECD countries. Journal of International Financial Markets, Institutions and Money, 53, 227–262. https://doi.org/10.1016/j.intfin.2017.12.002
BPS. (2020). Analisis Hasil Survey Dampak COVID-19 terhadap pelaku Usaha (pp. 8–11).
Cai, C. X., Fu, X., & Kerestecioglu, S. (2022). Economic uncertainty: Mispricing and ambiguity premium. European Financial Management. https://doi.org/10.1111/eufm.12403
Dahiyat, A. (2016). Does Liquidity and Solvency Affect Banks Profitability? Evidence from Listed Banks in Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 6(1). https://doi.org/10.6007/ijarafms/v6-i1/1954
Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor psychology and security market under- and overreactions. Journal of Finance, 53(6). https://doi.org/10.1111/0022-1082.00077
Dayag, A. J., & Trinidad, F. (2019). Assessment of the correlation between price-earnings ratio and stock market returns of universal banks in the Philippines. International Journal of Research in Business and Social Science (2147- 4478), 8(5), 172–181. https://doi.org/10.20525/ijrbs.v8i5.481
Dendawijaya, L. (2005). Manajemen Perbankan (2nd ed.). Ghalia Indonesia.
Dhananjaya, K. (2023). Market valuation and corporate investment in India. Vilakshan - XIMB Journal of Management, 20(1). https://doi.org/10.1108/xjm-01-2021-0022
Elnahass, M., Izzeldin, M., & Abdelsalam, O. (2014). Loan loss provisions, bank valuations and discretion: A comparative study between conventional and Islamic banks. Journal of Economic Behavior and Organization, 103, S160–S173. https://doi.org/10.1016/j.jebo.2013.08.018
Endri, E., Rinaldi, M., Ian, D. A., Saing, B., & Aminudin, A. (2021). Oil price and stock return: Evidence of mining companies in Indonesia. International Journal of Energy Economics and Policy, 11(2), 110–114. https://doi.org/10.32479/ijeep.10608
Eng, L. L., & Nabar, S. (2007). Loan loss provisions by banks in Hong Kong, Malaysia and Singapore. Journal of International Financial Management and Accounting, 18(1), 18–38. https://doi.org/10.1111/j.1467-646X.2007.01006.x
Etudaiye-Muhtar, O. F., & Abdul-Baki, Z. (2021). Market structure, institutional quality and bank capital ratios: evidence from developing countries. European Journal of Management and Business Economics, 30(1). https://doi.org/10.1108/EJMBE-09-2019-0158
Farias Nazário, R. T., e Silva, J. L., Sobreiro, V. A., & Kimura, H. (2017). A literature review of technical analysis on stock markets. In Quarterly Review of Economics and Finance (Vol. 66). https://doi.org/10.1016/j.qref.2017.01.014
Fibriyanti, Y. V., & Widagdo, A. K. (2022). Can Foreign Ownership Moderate the Relationship Corporate Social Responsibility and Financial Performance?? 26(4), 960–976. https://doi.org/10.26905/jkdp/v26i4.8968
Francis, B. B., Hasan, I., Song, L., & Yeung, B. (2015). What determines bank-specific variations in bank stock returns? Global evidence. Journal of Financial Intermediation, 24(3), 312–324. https://doi.org/10.1016/j.jfi.2014.06.002
Gao, P., Lim, C. Y., Liu, X., & Zeng, C. C. (2022). Loan loss provisions and return predictability: A dynamic perspective. China Journal of Accounting Research, 15(2). https://doi.org/10.1016/j.cjar.2022.100224
Garin Pratiwi Solihati. (2021). THE INFLUENCE OF DEBT TO EQUITY RATIO, CURRENT RATIO, AND NET PROFIT MARGIN ON STOCK PRICE. EPRA International Journal of Economics, Business and Management Studies. https://doi.org/10.36713/epra8160
Gebhardt, G., & Novotny-Farkas, Z. (2011). Mandatory IFRS Adoption and Accounting Quality of European Banks. Journal of Business Finance and Accounting, 38(3–4), 289–333. https://doi.org/10.1111/j.1468-5957.2011.02242.x
Ghozali, I. (2016). Desain Penelitian Kuantitatif dan Kualitatif untuk Akuntansi, Bisnis, dan Ilmu Sosial Lainnya. Yoga Pratama.
Glasserman, P., & Nouri, B. (2012). Contingent capital with a capital-ratio trigger. Management Science, 58(10), 1816–1833. https://doi.org/10.1287/mnsc.1120.1520
Goso, G. (2022). The Influence of Capital Structure, Liquidity, and Company Size on Sulselbar Bank’s Profitability. Enrichment?: Journal of Management, 12(4), 2847–2853. https://doi.org/10.35335/enrichment.v12i4.745
Graham, & Dood. (1934). Security Analysis. NY?: McGraw-Hill. https://doi.org/10.2307/2977213
Griffin, P. (2000). Further evidence on the economic effects of changes in loan loss provisions on bank stock return.
Gurrib, I. (2022). Technical Analysis, Energy Cryptos and Energy Equity Markets. International Journal of Energy Economics and Policy, 12(2). https://doi.org/10.32479/ijeep.11015
Haider Khan, Z., Sharmin Alin, T., & Hussain, A. (2011). Price Prediction of Share Market Using Artificial Neural Network “ANN.” International Journal of Computer Applications, 22(2). https://doi.org/10.5120/2552-3497
Hair, J., Black, W., Babin, B., & Anderson, R. (2010). Multivariate Data Analysis (7th Edition).
Hamza, S. M. (2017). Impact of Credit Risk Management on Banks Performance: A Case Study in Pakistan Banks. European Journal of Business and Management, 9(1), 57–64. www.iiste.org
Hauser, S., & Kedar-Levy, H. (2018). Liquidity might come at cost: The role of heterogeneous preferences. Journal of Financial Markets, 39, 1–23. https://doi.org/10.1016/j.finmar.2018.03.001
Hewa, S. I., Mala, R., & Chen, J. (2020). IASB’s independence in the due process: an examination of interest groups’ influence on the development of IFRS 9. Accounting and Finance, 60(3), 2585–2615. https://doi.org/10.1111/acfi.12426
Hidayatullah, S., Patalo, R. G., & ... (2022). Implementation of Service Recovery on Behavioral Intentions through Perceived Value in Banking Services During the Covid 19 Pandemic. Jurnal Keuangan Dan …, 25(4), 425–435. https://doi.org/10.26905/jkdp.v2i2.7348
Hoang, L. T., Phan, T. T., & Ta, L. N. (2020). Nominal price anomaly in emerging markets: Risk or mispricing? Journal of Asian Finance, Economics and Business, 7(9). https://doi.org/10.13106/JAFEB.2020.VOL7.NO9.125
Hukom, M. A., & Lubis, A. W. (2023). The impact of COVID-19 and bank capital ratio on loan changes of ASEAN-5’s banking industry. Banks and Bank Systems, 18(1). https://doi.org/10.21511/bbs.18(1).2023.07
Hunjra, A. I., Zureigat, Q., & Mehmood, R. (2020). Impact of capital regulation and market discipline on capital ratio selection: A cross country study. International Journal of Financial Studies, 8(2), 1–13. https://doi.org/10.3390/ijfs8020021
Husaeni, U. A. (2018). Determinants of Capital Structure in Companies Listed in The Jakarta Islamic Index. International Journal of Economics, Management and Accounting, 26(2), 443–456.
Husna, A., & Satria, I. (2019). Effects of Return on Asset, Debt To Asset Ratio, Current Ratio, Firm Size, and Dividend Payout Ratio on Firm Value. International Journal of Economics and Financial Issues, 9(5), 50–54. https://doi.org/10.32479/ijefi.8595
Jasman, J., & Murwaningsari, E. (2022). Loan loss provision index and bank risk: An empirical study in Indonesia. Banks and Bank Systems, 17(2). https://doi.org/10.21511/bbs.17(2).2022.03
Jin, J., Li, N., Liu, S., & Khalid Nainar, S. M. (2023). Cyber attacks, discretionary loan loss provisions, and banks’ earnings management. Finance Research Letters. https://doi.org/10.1016/j.frl.2023.103705
Kadale, P. N. P., Prajwal, G., Jadhav, P., Landge, S., & Bhoite, P. (2021). Stock Prediction Using Technical And Sentimental Analysis. International Journal of Advanced Research in Science, Communication and Technology. https://doi.org/10.48175/ijarsct-1072
Karmacharya, B., Chapagain, R., Dhungana, B. R., & Singh, K. (2022). Effect of Perceived Behavioral Factors on Investors’ Investment Decisions in Stocks: Evidence from Nepal Stock Market. Journal of Business and Management Research, 4(01). https://doi.org/10.3126/jbmr.v4i01.46680
Kasmir. (2015). Analisis Laporan Keuangan (8th ed.). Raja Grafindo Persada.
Kim, D., & Santomero, A. (1988). Risk in Banking and Capital Regulation. The Journal of Finance, 43(5). https://doi.org/10.1111/j.1540-6261.1988.tb03966.x
Laeven, L., Ratnovski, L., & Tong, H. (2016). Bank size, capital, and systemic risk: Some international evidence. Journal of Banking and Finance, 69. https://doi.org/10.1016/j.jbankfin.2015.06.022
Laur, C. V., Agarwal, P., Mukerji, G., Goulbourne, E., Baranek, H., Pus, L., Bhatia, R. S., Martin, D., & Bhattacharyya, O. (2021). Building health services in a rapidly changing landscape: Lessons in adaptive leadership and pivots in a covid-19 remote monitoring program. In Journal of Medical Internet Research (Vol. 23, Issue 1). https://doi.org/10.2196/25507
Lewellen, J. (2010). Accounting anomalies and fundamental analysis: An alternative view. Journal of Accounting and Economics, 50(2–3), 455–466. https://doi.org/10.1016/j.jacceco.2010.09.007
Lyle, M. R., & Yohn, T. L. (2022). Fundamental Analysis and Mean-Variance Optimal Portfolios. Accounting Review, 96(6). https://doi.org/10.2308/TAR-2019-0622
Marozva, G. (2019). Liquidity and Stock Returns: New Evidence From Johannesburg Stock Exchange. The Journal of Developing Areas, 53(2), 79–90. https://doi.org/10.1353/jda.2019.0022
Mazreku, I., Morina, F., & Zeqaj, F. (2020). Does working capital management affect the profitability of commercial banks: The case of kosovo. European Journal of Sustainable Development, 9(1). https://doi.org/10.14207/ejsd.2020.v9n1p126
Mishra, P. K., & Mishra, S. K. (2021). Do Banking and Financial Services Sectors Show Herding Behaviour in Indian Stock Market Amid COVID-19 Pandemic? Insights from Quantile Regression Approach. Millennial Asia. https://doi.org/10.1177/09763996211032356
Mohanram, P., Saiy, S., & Vyas, D. (2018). Fundamental analysis of banks: the use of financial statement information to screen winners from losers. Review of Accounting Studies, 23(1), 200–233. https://doi.org/10.1007/s11142-017-9430-2
Moore, J. (2020). Glamour among value: P/E ratios and value investor attention. Financial Management, 49(3), 673–706. https://doi.org/10.1111/fima.12281
Muhammad, U., Saleem, S., Muhammad, A. ul H., & Mahmood, F. (2018). Stock mispricing and investment decisions: evidence from Pakistan. Journal of Financial Reporting and Accounting, 16(4). https://doi.org/10.1108/JFRA-04-2017-0026
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2). https://doi.org/10.1016/0304-405X(84)90023-0
Ng, J., Saffar, W., & Zhang, J. J. (2020). Policy uncertainty and loan loss provisions in the banking industry. Review of Accounting Studies, 25(2). https://doi.org/10.1007/s11142-019-09530-y
Nguyen, Q. T. T., Gan, C., & Li, Z. (2021). Capital regulation and bank capital ratio–introduction of a new measurement. Asia-Pacific Journal of Accounting and Economics, 28(6). https://doi.org/10.1080/16081625.2019.1600419
Noviyanti, E. A., Rahayu, C. W. E., & Rahmawati, C. H. T. (2021). Financial Performance and Stock Price: Another Review on Banks Listed in Indonesia Stock Exchange. Journal of Management and Business Environment (JMBE), 3(1). https://doi.org/10.24167/jmbe.v3i1.3438
Nti, I. K., Adekoya, A. F., & Weyori, B. A. (2020). A systematic review of fundamental and technical analysis of stock market predictions. In Artificial Intelligence Review (Vol. 53, Issue 4). Springer Netherlands. https://doi.org/10.1007/s10462-019-09754-z
Patin, J.-C., Rahman, M., & Mustafa, M. (2020). Impact of total asset turnover ratio on equity returns?: dynamic panel data analysis. Revista de Contabilidad, Negocios y Gestión (JABM), 27(2), 19.
Picasso, A., Merello, S., Ma, Y., Oneto, L., & Cambria, E. (2019). Technical analysis and sentiment embeddings for market trend prediction. Expert Systems with Applications, 135. https://doi.org/10.1016/j.eswa.2019.06.014
Proença, C., Augusto, M., & Murteira, J. (2023). The effect of earnings management on bank efficiency: Evidence from ECB-supervised banks. Finance Research Letters, 51. https://doi.org/10.1016/j.frl.2022.103450
Puspitaningtyas, Z. (2019). Empirical evidence of market reactions based on signaling theory in Indonesia Stock Exchange. Investment Management and Financial Innovations, 16(2). https://doi.org/10.21511/imfi.16(2).2019.06
Rane, N., & Gupta, P. (2022). Impact of Financial Ratios on Stock Price: Evidence from Indian Listed Banks on NSE. Cardiometry, 24, 449–455. https://doi.org/10.18137/cardiometry.2022.24.449455
Raphael, G. (2013). Bank-specific, industry-specific and macroeconomic determinants of bank efficiency in Tanzania: A two stage analysis. European Journal of Business and Management, 5(2), 2222–2839. https://s3.amazonaws.com/academia.edu.documents/30633015/Bank-specific__industry-specific_and_macroeconomic_determinants_of_bank_efficiency_in_Tanzania.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1512193867&Signature=DgTGvGtNqQo6EBj2778b8KfMk98%3D&res
Richardson, S., Tuna, I., & Wysocki, P. (2010). Accounting anomalies and fundamental analysis: A review of recent research advances. Journal of Accounting and Economics, 50(2–3). https://doi.org/10.1016/j.jacceco.2010.09.008
Romadhoni, N., Prihatiningsih, P., & Kusuma, S. Y. (2022). THE EFFECT OF PROFITABILITY RATIOS ON SHARE PRICES OF PERSERO COMMERCIAL BANKS IN INDONESIA FOR PERIOD 2017-2021. Dinamika Akuntansi Keuangan Dan Perbankan, 11(2). https://doi.org/10.35315/dakp.v11i2.9108
Ross, S. A. (1973). The Economic Theory of Agency?: The Principal’s Problem. The American Economic Review, 63(2), 134–139.
Sadka, R., & Scherbina, A. (2007). Analyst disagreement, mispricing, and liquidity. Journal of Finance, 62(5). https://doi.org/10.1111/j.1540-6261.2007.01278.x
Schaeck, K., & Cihák, M. (2012). Banking Competition and Capital Ratios. European Financial Management, 18(5), 836–866. https://doi.org/10.1111/j.1468-036X.2010.00551.x
Siddique, A., Khan, M. A., & Khan, Z. (2022). The effect of credit risk management and bank-specific factors on the financial performance of the South Asian commercial banks. Asian Journal of Accounting Research, 7(2), 182–194. https://doi.org/10.1108/AJAR-08-2020-0071
Siddique, A., Masood, O., Javaria, K., & Huy, D. T. N. (2020). A comparative study of performance of commercial banks in ASIAN developing and developed countries. Insights into Regional Development, 2(2), 580–591. https://doi.org/10.9770/ird.2020.2.2(6)
Sloan, R. G. (2019). Fundamental analysis redux. Accounting Review, 94(2), 363–377. https://doi.org/10.2308/accr-10652
Soumaré, I., Tchakoute Tchuigoua, H., & Hessou, H. T. S. (2020). Are microfinance institutions resilient to economic slowdown? Evidence from their capital ratio adjustment over the business cycle. Economic Modelling, 92(May 2019), 1–22. https://doi.org/10.1016/j.econmod.2020.07.006
Spence, M. (1973). Job Market Signaling. The Quarterly Journal of Economics, 87(3), 355–374.
Spence, M. (1976a). Competition in Salaries , Credentials , and Signaling Prerequisites for Jobs. The Quarterly Journal of Economics, 90(1), 51–74.
Spence, M. (1976b). Informational Aspects of Market Structure?: An Introduction. The Quarterly Journal of Economics, 90(4), 591–597.
Spence, M. (2002). American Economic Association Signaling in Retrospect and the Informational Structure of Markets Author ( s ): Michael Spence Source?: The American Economic Review , Vol . 92 , No . 3 ( Jun ., 2002 ), pp . 434-459 Published by?: American Economic Associat. The American Economic Review, 92(3), 434–459.
Syamsuddin, L. (2004). Manajemen Keuangan Perusahaan (8th ed.). Raja Grafindo Persada.
Tsai, C. F., & Hsiao, Y. C. (2010). Combining multiple feature selection methods for stock prediction: Union, intersection, and multi-intersection approaches. Decision Support Systems, 50(1). https://doi.org/10.1016/j.dss.2010.08.028
Utami, W., Nugroho, L., & Farida. (2017). Fundamental Versus Technical Analysis of Investment: Case Study of Investors Decision in Indonesia Stock Exchange. The Journal of Internet Banking and Commerce, 22(8).
Walkshäusl, C. (2021). Predicting stock returns from the pricing and mispricing of accounting fundamentals. Quarterly Review of Economics and Finance, 81. https://doi.org/10.1016/j.qref.2021.06.011
Winkelmann, D., Deutscher, C., & Ötting, M. (2021). Bookmakers’ mispricing of the disappeared home advantage in the German Bundesliga after the COVID-19 break. Applied Economics, 53(26). https://doi.org/10.1080/00036846.2021.1873234
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Archangela Valerie Kristiono
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.