Impact of financial ratios on technology and telecommunication stock returns: evidence from an emerging market

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This study focuses on the relationship between financial ratios and the technology and telecommunication stock returns listed on the Istanbul Stock Exchange. Since technology and telecommunication sector has become an important part of the Turkish economy and is attractive for investors and shareholders, the results play a critical role for all stakeholders. This academic work aims to determine, through the application of panel data analysis, using both the Parks-Kmenta estimator and the Two-way Mixed Effects Model, whether the Price-to-Sales, Earnings per Share (EPS), Debt-to-Equity, and EBITDA Margin financial ratios affect the returns of technology and telecommunication stock returns listed on the Istanbul Stock Exchange. According to empirical findings, Earnings per Share (EPS), EBITDA Margin, and Price-to-Sales ratios have statistically significant effects on technology and telecommunication companies’ stock returns. Higher EPS and EBITDA Margin ratios generate higher returns for the next quarters, and lower Price-to-Sales ratios lead to higher returns for the following periods. Furthermore, the results obtained using the Two-way Mixed Effects Model show that the Debt-to-Equity ratio is negatively related to stock returns.

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    • Figure 1. Heterogeneity across units
    • Figure 2. Heterogeneity across periods
    • Table 1. Descriptive statistics of the variables in the sample
    • Table 2. Correlation matrix of variables
    • Table 3. Variation Inflation Factors of the variables
    • Table 4. Stationarity test results for all variables
    • Table 5. Stationarity test results for first differenced variables
    • Table 6. F-test results for testing individual and time-specific effects
    • Table 7. Breusch-Pagan LM test results for random effects
    • Table 8. Hausman test for two-way model results
    • Table 9. Wooldridge autocorrelation test results
    • Table 10. Breusch-Pagan LM test of cross-sectional independence
    • Table 11. Pesaran’s test of cross-sectional independence
    • Table 12. Modified Wald test for heteroscedasticity across stocks
    • Table 13. Modified Wald test for heteroscedasticity across quarters
    • Table 14. Regression results using Parks-Kmenta estimator
    • Table 15. Regression results computed using two-way mixed effects model
    • Conceptualization
      Hakki Ozturk
    • Formal Analysis
      Hakki Ozturk, Tolun A. Karabulut
    • Investigation
      Hakki Ozturk, Tolun A. Karabulut
    • Methodology
      Hakki Ozturk, Tolun A. Karabulut
    • Software
      Hakki Ozturk, Tolun A. Karabulut
    • Supervision
      Hakki Ozturk
    • Validation
      Hakki Ozturk
    • Writing – review & editing
      Hakki Ozturk
    • Writing – original draft
      Tolun A. Karabulut