The Effects Of Accounting And Market Indicators Towards Companies’ Performance In Amman Stock Exchange, Mediated By Stock Volatility
The efficient market hypothesis theorizes that current stock prices and returns reflect all relevant information. Stock prices and returns only change upon the emergence of new information. Firms must provide information to help investors make investment decisions. The concerns of owners, investors,...
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| Summary: | The efficient market hypothesis theorizes that current stock prices and returns reflect all relevant information. Stock prices and returns only change upon the emergence of new information. Firms must provide information to help investors make investment decisions. The concerns of owners, investors, business partners, stakeholders, and creditors about the financial position of a company calls for appropriate performance measurement tools (i.e., discriminate between investment opportunities and effect of stock volatility). Most often, they rely on publicly available accounting and market indicators. There is also a lack of financial analysis techniques on financial indicators that can discriminate between performing and underperforming companies. The extant literature is inconclusive about the impacts of accounting and market indicators on stock price and return, likely due to its implicit assumption that they are direct. An alternative perspective, one that has met with little investigation, is that the impact may be influenced by a mediator, such as stock volatility. Against these issues, this study built on past research to: 1) investigate the impact of accounting and market indicators on stock price and return; 2) evaluate company performance and distinguish companies into performing and underperforming; and 3) investigate the mediating effect of stock volatility on relationships between accounting and market indicators and stock price and return. Therefore, investors and stakeholders can predict stock validity using indicators that reflect the performance of firms’ operating activities. Additionally, they enable policymakers and market regulators to make rational decisions to enhance investment policies. The study analyzed a panel data of 63 companies constituting the Amman Stock Exchange General Index from 2008 to 2018 using ordinary and generalized least squares regression models, multiple discriminant analysis, and structural equation modelling. The findings showed that: 1) earnings per share (EPS), return on asset (ROA), market capitalization (MC), stock turnover ratio (STR), and book value per share (BPS) significantly and positively affected stock price; 2) total asset turnover (TOA), ROA, EPS, STR, and price-to-book value (PBV) significantly and positively affected stock return; 3) STR, EPS, and TOA significantly discriminated between performing and underperforming companies; 4) stock price volatility fully and positively mediated the relationship between STR and stock price; and 5) stock return volatility fully and positively mediated the relationship between MC and STR and stock return. The results were robust, and they evinced that accounting and market indicators, which are the main references of financial information, are reflected on company performance. The results are expected to provide an informative guideline to researchers to design appropriate performance evaluation models (e.g., Z-score models and mediation models); investors to choose the best investment opportunities in ASE; and financial policymakers to improve investment policies in Jordan. Investors, especially, may refer to the findings to help them make short-term investment decisions. Academics could also adopt the novel research models to evaluate company performance while accounting for stock volatility, allowing them to identify high performing firms and rank companies by performance. Future studies may consider replicating the analysis in developed and other emerging markets. |
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