Market Capitalization and Financial Variables: Evidence from Italian Listed Companies

Abstract

In the company-financial markets relationship, a crucial role is played by economic-financial information, because the financial variables deriving from the balance sheet analysis reduce the information asymmetries between management and potential investors and improve market efficiency.The present study is conducted to examine the effect of some financial variables on market capitalization. The market capitalization is considered as a dependent variable, while six are the independent variables: Return on Equity, Return on Assets, Price/Earnings Ratio, Operating Income/Turnover per share, Earnings Yield and Working Capital per Share. 307 Italian listed companies are considered. The study period is 10 years: from 2008 to 2017. This research, while noting that the variables considered are not decisive drivers of the market capitalization, outlines some important relationships: positive relationship between market capitalization and Price/Earnings Ratio, Operating income/Turnover per share and Working Capital per Share and negative relationship between market capitalization and ROE, ROA and Earnings Yield.