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All Journal Proceeding National Conference Business, Management, and Accounting (NCBMA)
Lento, George
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Economics, Econometrics & Finance Social Sciences

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THE IMPACT OF PROFITABILITY ON STOCK RETURNS: A COMPARATIVE ANALYSIS BETWEEN COMPANIES WITH HIGH AND LOW LEVERAGE LEVELS Lento, George; Dananjaya, Yanuar
Proceeding National Conference Business, Management, and Accounting (NCBMA) 7th National Conference Business, Management, and Accounting
Publisher : Faculty of Economics and Business Universitas Pelita Harapan

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Abstract

Various research has shown a positive relation between profitability and stock return. Higher profitability increases company value, and thus drives stock prices higher. We found that the relation is much weaker in companies with high leverage compared to companies with low leverage. The reason might be that in highly leveraged companies, the cash flow resulting from profit is mainly used to serve debt obligation, leaving little left for the stockholder. The result is important for stock investors to avoid putting too much emphasis on company profitability in making investing decisions.
THE IMPACT OF PROFITABILITY ON STOCK RETURNS: A COMPARATIVE ANALYSIS BETWEEN COMPANIES WITH HIGH AND LOW LEVERAGE LEVELS Lento, George; Dananjaya, Yanuar
Proceeding National Conference Business, Management, and Accounting (NCBMA) 7th National Conference Business, Management, and Accounting
Publisher : Faculty of Economics and Business Universitas Pelita Harapan

Show Abstract | Download Original | Original Source | Check in Google Scholar

Abstract

Various research has shown a positive relation between profitability and stock return. Higher profitability increases company value, and thus drives stock prices higher. We found that the relation is much weaker in companies with high leverage compared to companies with low leverage. The reason might be that in highly leveraged companies, the cash flow resulting from profit is mainly used to serve debt obligation, leaving little left for the stockholder. The result is important for stock investors to avoid putting too much emphasis on company profitability in making investing decisions.
Co-Authors Dananjaya, Yanuar