FINANCIAL VALUE DRIVERS THAT AFFECT STOCK RETURNS (CASE STUDY: MINING COMPANIES LISTED IN INDONESIA STOCK EXCHANGE)

Abstract

This study essentially aims to examine separate factors influencing firm’s value that consequently drive the stock returns. Yet, the writer encouraged assessing those separate factors relating to company’s financial performance. This study particularly attempts to find out whether financial value drivers decomposed from Return on Invested Capital (ROIC) together with two additional ratios from previous study have positive influence on stock returns and how significance the influence is. This topic seems to be imperative since the findings of this study might provide an insight for a company and shareholders to better understand how such performance variables might lead to firm’s value creation and subsequently affect stock returns.

This study, then, put more focus on mining companies listed in Indonesia Stock exchange (IDX) for the period 2008-2010 concerning the market capitalization of mining industry in Indonesia Stock Exchange was second largest in 2010 that have progressed from fourth largest in 2008 and third largest in 2009. In addition, the trading value of mining industry was the highest during the period 2008-2010. Throughout the purposive sampling technique, there are 17 mining companies out of 29 companies that are possible to be taken as sample. In order to meet the objective, this study utilizes the multiple regression analysis.

This study found that all variables tested altogether influence the stock returns. Yet, there are three variables that have significance effect on stock returns including gross margin, net profit margin and EBITDA margin while the rest variables are insignificant in driving the stock returns. The result also proposed that both gross margin and net profit margin are positively associated with the stock returns whereas EBITDA margin is negatively associated. This result signifies that an increase on gross margin and/ or net profit margin might lead to higher stock returns while the inverse relationship is supposed to occur between EBITDA margin and stock returns.