Behavior Among Stock Price, Financial Performance, and Financial Distress Evidence from the Australian and New Zealand Stock Exchanges

Abstract

Objective: The main objective of this study is to investigate the behavior among stock price, financial performance, and financial distress in Australian and New Zealand Stock Exchanges. Similar studies have been done on United States and European markets, but none on Australian and New Zealand Stock Exchanges. Our finding suggested that PE Ratio is not a reliable measure of financial performance in Australian and New Zealand Stock Exchanges. Method: Altman’s Z-score is applied to reflect the financial distress of the large listed firms in Australian Stock Exchange and New Zealand Stock Exchange while expected return on total investment minus the market premium, which is associated with the overall risk of a firm, is used as a proxy to stock price performance. In addition, this study also investigates the various effects on profitability, financial leverage, liquidity, growth, and size factors on stock performance. Results: Regression models are applied to investigate the stock performance upon independent variables’ effects. Results of the study show that all selected variables are reliable to use to measure performance, except P/E ratio. Moreover, Z-score, current ratio, P/E ratio, and ROE generally have significant positive relationship with stock price performance, while total assets, in general, have significant negative relationship with stock price performance. Conclusion: This paper has a potential to contribute in knowledge of stock price and financial performance. It also examines financial distress of the market. The objective of the study is to examine the dynamics of stock prices using market value ratios and financial performance using financial ratios under financial distress of selective countries particularly. Using the empirical data from listed companies from the stock exchanges, this study determines the stock performance in a unique way with the combination of market value ratios and financial ratios.