An empirical investigation of the impact of financial ratios and business combination on stock price among the service firms in the Philippines

College

Ramon V. Del Rosario College of Business

Department/Unit

Accountancy

Document Type

Article

Source Title

Academy of Accounting and Financial Studies Journal

Volume

20

Issue

2

First Page

104

Last Page

115

Publication Date

1-1-2016

Abstract

With more and more people becoming engaged in stock trading in the Philippine Exchange, it is becoming essential that these stock traders know which information would be useful for them to effectively assess and evaluate stock performance. This study explored the possible effects of mergers and acquisitions, together with the liquidity, activity, profitability, market performance ratios and the industry subsector on the year-on-year change in stock price among the different publicly listed service companies in the Philippines during the year 2006 to 2010. The services sector includes media, telecommunications, information technology, transportation services, hotel and leisure, education as well as diversified services subsectors. These different subsectors were subjected to the statistical tools and techniques used in this paper. To accomplish this, the researchers made use of panel data regression with mergers and acquisitions, financial ratios and industry subsector as independent variables and the year-on-year change in stock price as dependent variables to highlight the impact of various regressors on stock price. Results indicated that certain financial ratios, namely the return on asset, asset turnover, price-earnings and dividend payout ratios together with the diversified services subsector exhibited a significant impact on company's change in stock price. The result showed that some of the financial ratios had a significant impact on the company while business combinations did not have any significant impact on the year-on-year change in stock price. This indicated that managers make use of merger and acquisition strategies for purposes other than improving the stock performance of the company. This study would help corporate managers to create more advantageous strategies with the objective of increasing stock price. The study also allows the public to better anticipate changes in stock prices.

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Disciplines

Accounting

Keywords

Consolidation and merger of corporations--Philippines; Stocks—Prices--Philippines

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