The Effect of Earning Per Share, Price to Book Value, Dividend Payout Ratio, and Net Profit Margin on the Stock Price in Indonesia Stock Exchange

Abstract

Fundamental analysis of companies with financial ratios is essential in making investment decisions for any company. Therefore, to obtain maximum profit, investors need to perform a study before making investment decisions. This research aims to examine the effect of Earning Per Share (EPS), Price to Book Value (PBV), Dividend Payout Ratio (DPR), and Net Profit Margin (NPM) on the stock price. The research at the Indonesia Stock Exchange, a sub-sector of food and beverage companies, period five years (2014-2018). The sample of this study amounted to 12 companies from 26 companies in the population of food and beverage companies that have met the researchers' criteria. Data analysis with bootstrapping used SEM (statistical equation modeling) in hypothesis testing. The research findings confirmed the significant effect of Earning per Share, Price to Book Value, and Dividend Payout Ratio on stock prices. Meanwhile, the Net Profit Margin does not significantly affect stock prices in the study period, with an alpha significance of five percent. These findings imply practical implications that EPS, PBV, DPR, and NPM ratio information can be considered in investment decisions for anyone.

The Influence of Accounting Measurement on the Stock Price: Emerging Market Evidence

“…Based on the results of the study, there is no significant effect of EPS, Current ratio, Debit to Equity, Cash flow Ratio on the stock prices of manufacturing companies listed in the Palestine Exchange in 2015-2020. It is worth to mention that many research studies in this area have revealed similar results (Asmirantho & Somantri, 2017;Bustani et al, 2021;Kamar, 2017;Musallam, 2018;Siregar & Doriawaty, 2021). Consequently, the researcher believes that there is a need to conduct more investigation to reveal the investor's behavior.…”

“…Similarly, Asmirantho & Somantri (2017) discover that the ROE has no effect but positive on the stock price. In addition, Bustani et al (2021) point out that the Net Profit Margin does not significantly affect stock prices. Moreover, Utami & Darmawan (2019) conclude that debt to equity ratio, return on assets and return on equity partially have no effect on stock prices.…”

“…In the same line Fama & French (1988) have suggested that accounting ratios are an essential approach for understanding the stock market performance. Later on, many researches investigate the impact of accounting ratios on the stock price in different regions and different periods such as Ayadi & Pyun, 1994;Bustani et al, 2021;Husain et al, 2020;Husna & Satria, 2019;Kamar, 2017;Siregar & Doriawaty, 2021). However, the existence of contradictory research results seams a real problem that necessitates conducting further research.…”

“…To measure the effect, the researchers use diverse approaches such as logistic regression model (Imran, 2018), Ordinary Least Square (OLS) method (Kamar, 2017), regression analysis of panel data, t test, F test, and classical assumption of normality, multicollinearity, heteroscedasticity and autocorrelation tests (Asmirantho & Somantri, 2017), boostraping in the Structural Equation Modelling-Partial Least Square (SEM-PLS) (Bustani et al, 2021), Common Effect, Fixed Effect, and Random Effect. Chow test model, Hausman test, and Lagrange Multiplier test (Herawati & Angger, 2018;Siregar & Doriawaty, 2021), Weighted Least Square (WLS) (Musallam, 2018), VAR methodology (Meriç et al, 2017), a multiple regression analysis (Husna & Satria, 2019;and Karamoy & Tulung, 2020).…”

“…In the same line, micro economic factors that influence the investment decision making are: profitability, debt, dividends, the firm growth, etc. (Arbidane & Volkova, n.d.;Bustani et al, 2021;Husain et al, 2020;Husna & Satria, 2019;Öztürk, 2017). Referring to signaling theory, many researchers confirm that the debt to equity ratio (DER), return on assets (ROA), return on equity (ROE), earnings per share (EPS) and other accounting measurements affect the investment decisions reflected on the stock price (Imran, 2018;Siregar & Doriawaty, 2021;Utami & Darmawan, 2019).…”