Analysis of Financial Fundamental Factors on Stock Prices in the Banking Business on the Indonesia Stock Exchange

Oct 13, 2025 by talynt.org 137 views

Analysis of Financial Fundamental Factors on Stock Prices in the Banking Business on the Indonesia Stock Exchange

Introduction

In the world of investment, stock prices are one of the primary indicators that investors closely observe. The Indonesia Stock Exchange (IDX) is home to numerous banking businesses, and understanding the factors that influence their stock prices is crucial for investors and management alike. This study aims to analyze the effect of various financial fundamental factors on stock prices in the banking business listed on the IDX from 2011 to 2014. The factors studied include profitability (NIWC and ROE), leverage (RETA), growth (Gwthht), efficiency (FATO), earning per share (EPS), and price earning ratio (PER).

Research Methodology

The type of research conducted in this study is causal research, where the objective is to establish a cause-and-effect relationship between the independent variables (financial fundamental factors) and the dependent variable (stock prices). A replication model of previous studies was used, with a population of 38 banking businesses listed on the IDX. Judgment sampling was employed to select 14 banking businesses as research samples. The data obtained were analyzed using multiple linear regression techniques, as well as hypothesis testing through F-Statistics to test simultaneous effects and T-statistical effects to test partial regression coefficients at a 5% significance level.

Research Findings

The results of this study showed that simultaneously, all the variables tested had an influence on stock prices. However, the effects of each variable differed:

Profitability (NIWC)

This variable had a negative and insignificant influence on stock prices. This suggests that although NIWC is used as a measure of profitability, there is no clear relationship between NIWC increases and an increase in stock prices. This may be due to the fact that NIWC is an indirect performance measurement, which may lead to uncertainty among investors.

Profitability (ROE)

Unlike NIWC, ROE showed positive and significant effects on stock prices. High ROE indicates management efficiency in generating profits from their equity, thereby increasing investor confidence and encouraging rising stock prices. This suggests that investors prioritize ratios that reflect profit efficiency and performance.

Earning Per Share (EPS)

EPS also showed a positive and significant effect on stock prices. As one measure of the company's performance, a high EPS indicates that the company is able to generate greater profits per share, attracting the attention of investors to buy the company's shares.

Leverage (RETA)

RETA showed a negative and insignificant influence on stock prices. This can indicate that despite an increase in leverage, investors may not see it as a major factor in making investment decisions.

Growth (Gwthht)

Gwthht showed a positive and significant effect on stock prices. This suggests that investors prioritize companies with high growth potential, as it indicates a company's ability to increase its value over time.

Efficiency (FATO)

FATO showed a negative and insignificant influence on stock prices. This can indicate that despite an increase in efficiency, investors may not see it as a major factor in making investment decisions.

Price Earning Ratio (PER)

PER showed a positive and significant effect on stock prices. This suggests that investors prioritize companies with high price earning ratios, as it indicates a company's ability to generate profits from its equity.

Additional Analysis and Explanation

From the results of this study, it can be concluded that not all financial fundamental factors have a significant effect on stock prices in the banking sector. Profitability (ROE) and EPS appear as performance indicators that are more considered by investors compared to NIWC, which may be less relevant to analyze stock performance. The difference in influence between NIWC and ROE shows that investors tend to prioritize ratios that reflect profit efficiency and performance.

The results of this study provide important insights for company investors and management in the banking sector. Understanding the factors that influence stock prices can help better investment decisions and more effective management strategies to increase company value in the stock market.

Conclusion

In conclusion, this study aimed to analyze the effect of various financial fundamental factors on stock prices in the banking business listed on the IDX from 2011 to 2014. The results showed that profitability (ROE) and EPS have a significant positive effect on stock prices, while NIWC, leverage (RETA), growth (Gwthht), efficiency (FATO), and price earning ratio (PER) have a negative or insignificant effect. The findings of this study provide important insights for investors and management in the banking sector, highlighting the importance of understanding the factors that influence stock prices.

Recommendations

Based on the findings of this study, the following recommendations are made:

Investors: When making investment decisions, prioritize companies with high profitability (ROE) and EPS, as they indicate a company's ability to generate profits from its equity.
Management: Focus on improving profitability (ROE) and EPS by increasing efficiency and reducing costs, as they are key performance indicators that investors prioritize.
Regulators: Develop policies that promote transparency and accountability in financial reporting, as this can help investors make informed decisions.

Limitations

This study has several limitations, including:

Sample size: The sample size of 14 banking businesses may not be representative of the entire banking sector.
Time period: The study was conducted over a period of 4 years, which may not be sufficient to capture the long-term effects of financial fundamental factors on stock prices.
Data quality: The quality of the data used in this study may be affected by errors or biases in financial reporting.

Future Research Directions

Future research directions include:

Long-term effects: Conduct a study that examines the long-term effects of financial fundamental factors on stock prices.
Industry-specific factors: Examine the effect of industry-specific factors on stock prices in the banking sector.
International comparison: Compare the effect of financial fundamental factors on stock prices in the banking sector across different countries.
Q&A: Analysis of Financial Fundamental Factors on Stock Prices in the Banking Business on the Indonesia Stock Exchange

Introduction

In our previous article, we analyzed the effect of various financial fundamental factors on stock prices in the banking business listed on the Indonesia Stock Exchange (IDX) from 2011 to 2014. The study found that profitability (ROE) and EPS have a significant positive effect on stock prices, while NIWC, leverage (RETA), growth (Gwthht), efficiency (FATO), and price earning ratio (PER) have a negative or insignificant effect. In this Q&A article, we will answer some of the most frequently asked questions about the study.

Q: What are the key findings of the study?

A: The study found that profitability (ROE) and EPS have a significant positive effect on stock prices, while NIWC, leverage (RETA), growth (Gwthht), efficiency (FATO), and price earning ratio (PER) have a negative or insignificant effect.

Q: Why did the study focus on the banking sector?

A: The banking sector is a critical component of the Indonesian economy, and understanding the factors that influence stock prices in this sector can provide valuable insights for investors and management.

Q: What are the implications of the study's findings for investors?

A: The study's findings suggest that investors should prioritize companies with high profitability (ROE) and EPS, as they indicate a company's ability to generate profits from its equity.

Q: What are the implications of the study's findings for management?

A: The study's findings suggest that management should focus on improving profitability (ROE) and EPS by increasing efficiency and reducing costs, as they are key performance indicators that investors prioritize.

Q: What are the limitations of the study?

A: The study has several limitations, including a sample size of 14 banking businesses, a time period of 4 years, and potential errors or biases in financial reporting.

Q: What are the future research directions suggested by the study?

A: The study suggests several future research directions, including examining the long-term effects of financial fundamental factors on stock prices, industry-specific factors, and international comparisons.

Q: How can the study's findings be applied in practice?

A: The study's findings can be applied in practice by investors and management in the banking sector. Investors can use the study's findings to make informed investment decisions, while management can use the study's findings to develop effective strategies to improve profitability and EPS.

Q: What are the policy implications of the study's findings?

A: The study's findings suggest that regulators should develop policies that promote transparency and accountability in financial reporting, as this can help investors make informed decisions.

Q: How can the study's findings be used to improve financial reporting?

A: The study's findings can be used to improve financial reporting by highlighting the importance of transparency and accountability in financial reporting. Regulators can use the study's findings to develop policies that promote high-quality financial reporting.

Conclusion

In conclusion, the study's findings provide valuable insights for investors and management in the banking sector. The study's findings suggest that investors should prioritize companies with high profitability (ROE) and EPS, while management should focus on improving profitability and EPS by increasing efficiency and reducing costs. The study's limitations and future research directions are also discussed.