Impact of financial ratios on technology and telecommunication stock returns: evidence from an emerging market

Hakki Ozturk,Tolun A Karabulut

doi:10.21511/imfi.17(2).2020.07

Hakki Ozturk, Tolun A Karabulut

Open Access

https://doi.org/10.21511/imfi.17(2).2020.07

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Abstract

This study focuses on the relationship between financial ratios and the technology and telecommunication stock returns listed on the Istanbul Stock Exchange. Since technology and telecommunication sector has become an important part of the Turkish economy and is attractive for investors and shareholders, the results play a critical role for all stakeholders. This academic work aims to determine, through the application of panel data analysis, using both the Parks-Kmenta estimator and the Two-way Mixed Effects Model, whether the Price-to-Sales, Earnings per Share (EPS), Debt-to-Equity, and EBITDA Margin financial ratios affect the returns of technology and telecommunication stock returns listed on the Istanbul Stock Exchange. According to empirical findings, Earnings per Share (EPS), EBITDA Margin, and Price-to-Sales ratios have statistically significant effects on technology and telecommunication companies’ stock returns. Higher EPS and EBITDA Margin ratios generate higher returns for the next quarters, and lower Price-to-Sales ratios lead to higher returns for the following periods. Furthermore, the results obtained using the Two-way Mixed Effects Model show that the Debt-to-Equity ratio is negatively related to stock returns.

Highlights

Technology and telecommunication sector has become an important part of the Turkish economy and has grown up rapidly over recent years
This study aims to identify the effects of financial ratios on technology and telecommunication stock returns, which are critical for investors, creditors, and shareholders
Since few studies were conducted on technology and telecommunication stocks in the literature, one of the main purposes of this paper is to examine the interplay between financial ratios and technology and telecommunication sector companies’ stock returns traded on the Istanbul Stock Exchange, which is an emerging market

Summary

INTRODUCTION

Technology and telecommunication sector has become an important part of the Turkish economy and has grown up rapidly over recent years. Price-earnings multiple and dividend price ratios The first one is the ratio of book assets to market had a significant effect on predicting stock returns equity (market leverage), and the second one is the in the long run. Petcharabul and Romprasert (2014) studied technology sector stocks in Thailand for 15 years They used several financial ratios and, as a result, ROE and PE were merely interrelated to stock returns at a 95% significance level. Saji and Harikumar (2015) investigated 32 firms from the Information Technology (IT) sector, traded in the Indian Stock Exchange over the period 2000–2010 They used some financial ratios to find out if they are related to stock returns. Since few studies were conducted on technology and telecommunication stocks in the literature, one of the main purposes of this paper is to examine the interplay between financial ratios and technology and telecommunication sector companies’ stock returns traded on the Istanbul Stock Exchange, which is an emerging market

DATA AND METHOD

DISCUSSION

Findings

CONCLUSION