Financial ratios as determinants of stock price movements in Indonesia’s financial sector
Keywords:
ROA, ROE, Current ratio, DER, Stock priceAbstract
This study examines the influence of Return on Assets (ROA), Return on Equity (ROE), Debt to Equity Ratio (DER), and Current Ratio (CR) on stock prices of financial sector companies listed on the Indonesia Stock Exchange during 2019–2023. Using multiple linear regression with firm and year fixed effects, the results reveal that ROA positively and significantly affects stock prices (p = 0.005), ROE has a positive and marginally significant effect (p = 0.056), DER shows a negative and significant impact (p = 0.016), while CR exhibits a positive. However, marginally significant effect (p = 0.082). These findings suggest that profitability and liquidity enhance stock valuation, whereas leverage reduces it. The study highlights the importance of financial performance and capital structure in driving investor confidence. In conclusion, the results confirm that fundamental financial ratios remain key determinants of stock price dynamics in Indonesia’s financial sector, reinforcing the theoretical link between firm fundamentals and market valuation while offering practical insights for managers, investors, and policymakers.
References
1.Q. Munir, B. Akram, and S. A. Abbas, “Understanding Stock Price Dynamics with Dividend-Related Metrics and Financial Indicators in Pakistan’s Non-Financial Sectors,” Journal of Business and Economic Options, vol. 7, no. 1, pp. 1–9, 2024.
2.B. Malchev and Z. Bozhinovska-Lazarevska, “Shaping market perceptions: An investigation into Macedonian bank stock prices and their drivers,” Economy, Business and Development: An International Journal (EB&D), vol. 4, no. 2, pp. 1–15, 2023.
3.S. Sharma, I. Bhardwaj, and K. Kishore, “Capturing the impact of accounting and regulatory variables on stock prices of banks–an empirical study of Indian banks in panel data modeling,” Asian Journal of Accounting Research, vol. 8, no. 2, pp. 184–193, 2023.
4.U. Hasanah and H. Sulistiyo, “The Effect of Cr, Der, And Roe On Stock Prices Transportation Sub Sector Companies Listed On The Indonesia Stock Exchange,” Nominal: Barometer Riset Akuntansi Dan Manajemen, vol. 10, no. 1, pp. 102–117, 2021.
5.A. Kim, M. Muhn, and V. Nikolaev, “Financial statement analysis with large language models,” arXiv preprint arXiv:2407.17866, 2024.
6.A. Namdari and T. S. Durrani, “A multilayer feedforward perceptron model in neural networks for predicting stock market short-term trends,” in operations research forum, Springer, 2021, p. 38.
7.H. Zhai, M. Lu, Y. Shan, Q. Liu, and Y. Zhao, “Key audit matters and stock price synchronicity: Evidence from a quasi-natural experiment in China,” International Review of Financial Analysis, vol. 75, p. 101747, 2021.
8.X. Cui, C. Wang, J. Liao, Z. Fang, and F. Cheng, “Economic policy uncertainty exposure and corporate innovation investment: Evidence from China,” Pacific-Basin Finance Journal, vol. 67, p. 101533, 2021.
9.Y. Jouali, S. El Aboudi, R. EL AFI, and J. Jouali, “Anticipating financial distress: Leveraging financial information, financial ratios, and corporate governance for proactive risk management,” Edelweiss Applied Science and Technology, vol. 8, no. 4, pp. 683–696, 2024.
10.Y. Mahmood, A. Rashid, and M. F. Rizwan, “Do corporate financial flexibility, financial sector development and regulatory environment affect corporate investment decisions?,” Journal of Economic and Administrative Sciences, vol. 38, no. 3, pp. 485–508, 2022.
11.V. Aggarwal and N. Karwasra, “A bibliometric analysis on trade openness and economic growth: current dynamics and future direction,” Competitiveness Review: An International Business Journal, vol. 34, no. 2, pp. 446–467, 2024.
12.L. Liu, N. Nemoto, and C. Lu, “The Effect of ESG performance on the stock market during the COVID-19 Pandemic—Evidence from Japan,” Econ Anal Policy, vol. 79, pp. 702–712, 2023.
13.I. T. Kokores, “Looking to the future: Monetary policy in uncharted waters,” in Monetary policy in interdependent economies: The task ahead, Springer, 2023, pp. 217–250.
14.D. I. Agatón Lombera, D. A. Cardoso López, J. A. López Cabrera, and J. A. Nuñez Mora, “Market reactions to US financial indices: A comparison of the GFC versus the COVID-19 pandemic crisis,” Economies, vol. 12, no. 7, p. 165, 2024.
15.L. Mensah, R. Arhinful, and J. S. Owusu-Sarfo, “Enhancing cash flow management in Ghanaian financial institutions through effective corporate governance practices,” Corporate Governance: The International Journal of Business in Society, vol. 25, no. 4, pp. 707–734, 2025.
16.J. D. Odhiambo, C. K. Murori, and C. E. Aringo, “Financial leverage and firm performance: An empirical review and analysis,” East African Finance Journal, vol. 4, no. 1, pp. 25–35, 2025.
17.M. Ben Abdallah and S. Bahloul, “The influence of solvency and liquidity ratios on profitability of Tunisian banks: the moderating effect of asset quality,” African Journal of Economic and Management Studies, vol. 16, no. 2, pp. 255–270, 2025.
18.F. Saputra, “Analysis effect return on assets (ROA), return on equity (ROE) and price earning ratio (PER) on stock prices of coal companies in the Indonesia Stock Exchange (IDX) period 2018-2021,” Dinasti International Journal of Economics, Finance and Accounting, vol. 3, no. 1, pp. 82–94, 2022.
19.F. Sukesti, I. Ghozali, F. Fuad, A. KHARIS ALMASYHARI, and N. Nurcahyono, “Factors affecting the stock price: The role of firm performance,” The Journal of Asian Finance, Economics and Business, vol. 8, no. 2, pp. 165–173, 2021.
20.G. Caggiano, E. Castelnuovo, S. Delrio, and R. Kima, “Financial uncertainty and real activity: The good, the bad, and the ugly,” Eur Econ Rev, vol. 136, p. 103750, 2021.
21.U. Hasanah and H. Sulistiyo, “The Effect of Cr, Der, And Roe On Stock Prices Transportation Sub Sector Companies Listed On The Indonesia Stock Exchange,” Nominal: Barometer Riset Akuntansi Dan Manajemen, vol. 10, no. 1, pp. 102–117, 2021.
22.Y. A. Abbas, W. Mehmood, Y. Y. Lazim, and A. Aman-Ullah, “Sustainability reporting and corporate reputation of Malaysian IPO companies,” Environmental Science and Pollution Research, vol. 29, no. 52, pp. 78726–78738, 2022.
23.D. Sheth and M. Shah, “Predicting stock market using machine learning: best and accurate way to know future stock prices,” International Journal of System Assurance Engineering and Management, vol. 14, no. 1, pp. 1–18, 2023.
24.M. T. Law and P. A. McLaughlin, “Industry size and regulation: Evidence from US states,” Public Choice, vol. 192, no. 1, pp. 1–27, 2022.
B. Saleeb Agaiby Bakhiet, “Financial statements readability and stock price crash risk: the mediating roles of information asymmetry and stock liquidity,” Journal of Financial Reporting and Accounting, 2024.
Downloads
Published
Conference Proceedings Volume
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.