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Research Article

JCR. 2020; 7(12): 4233-4240


CORPORATE FINANCIAL PERFORMANCE EFFECT ON STOCK PRICES: EMPIRICAL EVIDENCE FROM A SMALL MARKET: A STUDY IN AMMAN STOCK EXCHANGE OVER THE PERIOD 2006 – 2017

Abdulrahman Hashem, Fadi Ayoub, Saleh Zurqan, Ismail Alawamleh, Murouj Aljamaeen.

Abstract
This paper aims to study the effect of corporate financial performance on stock prices and
consequently investors’ decisions. The Jordanian banks enlisted in Amman Stock Exchange were studied over
the period 2006 – 2017, as their average annual prices were linked in a multiple regression equation to the
following independent variables (financial ratios), which are: Total Assets, Return on Equity, Return on Assets,
Price-Earnings ratio, Price-to-Book ratio, Dividend per Share ratio and Debt ratio.
Multiple regression analysis was used by SPSS to test the equation and showed that there are significant positive
relationships between the average annual stock prices and the total assets, the Price-to-Book ratio and
Dividend/Share ratio, while indicated a negative relationship with the Debt ratio. The rest of the independent
variables were insignificant to the annual average stock prices.
Furthermore, the researchers proceeded to test the General Price Index movement and its relationship to several
financial indicators. The researchers examined the effect of Market Capitalization, Turnover Ratio, Price –
Earnings ratio, Price-to- Book ratio, Earnings per Share on the General Free Float Weighted Price Index. In this
regression model, the Price Index showed a single positive significant relationship with Price-to- Book ratio
only, which is homogeneous to the first model.
This study provides a proof that local investors in Amman Stock Exchange are prone to ignore many general
financial indicators in their investment decisions and stocks demand. This is possibly caused by behavioral
cognitive biases or limited understanding to proper stock valuation.

Key words: Financial Performance, Stock Prices, Investment Decision, Fundamental Analysis, Behavioral Finance.



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