The importance of financial indicators in the context of stock returns - a panel analysis on micro-determinants of stock returns: evidence from the pharmaceutical industry
by Gianfranco Marotta; Philippe Krahnhof
International Journal of Critical Accounting (IJCA), Vol. 12, No. 6, 2021

Abstract: The analysis of stock returns is possibly one of the most research-intense subjects in finance with still open queries and divergent opinions. From a firm perspective, new insights may aid CFOs and investor-relation departments in understanding value drivers that attract interest from analysts and investors. To improve KPIs and to align shareholders' and managers' interests in terms of incentive systems, the given paper seeks to explore the topic further by providing empirical evidence on the question of whether financial indicators are significantly related to stock returns. Here, it is argued that a meaningful performance indicator should be highly associated with returns, given the fact that management decisions changing shareholder wealth should cause corresponding returns. Supported by the principal-component-analysis (PCA), the indicators prove to account for approx. 38-41% of the total variance. This, in turn, leaves a big portion of variance unexplained potentially linked to several non-financial determinants.

Online publication date: Wed, 18-May-2022

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