Impact of Financial Ratios on Stock Prices in
Banking Sub-Sector Firms
Childan Berliana Arifin1, Rita Zulbetti2, Perwito3
1Faculty
of Economics and Bussiness, University of Muhammadiyah
Bandung;
2Faculty
of
Economics
and
Bussiness,
University
of
Muhammadiyah Bandung; 3Faculty of Economics and Bussiness, University
of Muhammadiyah Bandung. Indonesia.tc
Abstarct
This research analyzed the impact of financial ratios such as
Profitability Ratios, Solvency Ratiosm abd Market Value Ratios on stock
prices in banking companies listed on the Indonesia Stock Exchange (IDX)
from 2020 to 2023. Using a sample of 19 companies selected through
purposive sampling from a population of 47 issuers, the study analyzes the
influence of profitability (ROA, ROE), solvency (DER), and market value
(PBV) ratios. The findings reveal a positive and significant relationship
between ROE and PBV with stock prices, indicating that investors value
companies with high return on equity and a strong book value. Interestingly,
ROA and DER exhibit a negative and insignificant impact, suggesting that
asset utilization and debt levels may not be primary drivers of stock prices
in this subsector. These findings offer valuable insights for investors,
highlighting the importance of considering a combination of financial ratios
for informed investment decisions in the banking industry.
Keywords: Financial Ratios, Stock Prices, Banking, Panel Data, Stock
Market.
Correspondence:
Childan Berliana Arifin
childanarifin24@gmail.com
1.
INTRODUCTION
The state of a nation's economy can be reflected in the condition of its Capital Market (Sholikah, 2022). In the
past three years, the global economy, represented by countries like Singapore, the United States, China, Japan,
and South Korea, has not shown rapid growth, unlike the post-pandemic recovery period. Currently, the global
economy is moving slowly but remains in a positive trend (Bapepnas, 2023).
One indicator often used to assess a country's economic condition is Gross Domestic Product (GDP). GDP is a
national income concept that shows the total amount of goods and services produced by production units within
a country's borders in one year. Compared to other developing countries in ASEAN such as Malaysia, Vietnam,
the Philippines, and Thailand, Indonesia has experienced very significant GDP growth. This is influenced by
government policies and measures to mitigate post-pandemic economic growth, as well as the role of Indonesian
business actors and commodity sources.
The Capital Market is generally defined as a place where transactions of buying and selling securities or securities
take place. The Capital Market is also often used as a parameter to assess the economic condition of a country.
This can be seen in 2020 when the Covid-19 pandemic began to be announced in Indonesia. There was a
significant correction in the Composite Stock Price Index (IHSG or IDX Composite), caused by economic
instability and investor pessimism about the impact of the Covid-19 pandemic on the Indonesian economy.
However, data from the Indonesia Central Securities Depository (KSEI, 2023) shows that participation in each
Capital Market product has experienced growth post-pandemic. Indonesian Capital Market investors increased by
95%, stock and other securities investors increased by 103%, mutual fund investors increased by 115%, and the
number of Government Securities (SBN) investors increased by 32%. This certainly has a positive impact on the
Indonesian economy as a whole, with the increasing number of investors indicating an increase in the turnover of
productive funds domestically.
The Capital Market, especially the Indonesia Stock Exchange (IDX), is an important platform for companies in
the banking sub-sector to raise funds through Initial Public Offering (IPO) schemes and other securities issuances.
The funds raised can be used to strengthen bank capital, expand business, and improve the quality of financial
services.
The increase in investor participation in the Capital Market post-pandemic, as shown by data from the Indonesia
Central Securities Depository (KSEI, 2023), provides an opportunity for the banking sub-sector to obtain broader
funding and diversification. This is in line with the government's focus on promoting financial inclusion and
increasing public literacy on investment products in the Capital Market.
This study focuses on analyzing the effect of financial ratios on stock prices in banking sub-sector companies on
the IDX in the period of 2020-2023. The financial ratios analyzed are Profitability Ratios (Return On Asset - ROA
and Return On Equity - ROE), Solvency Ratio (Debt to Equity Ratio - DER), and Market Value Ratio (Price to
Book Value - PBV).
2.
LITERATURE REVIEW
2.1 Signaling Theory
Signaling Theory is a framework that explains the phenomenon of asymmetric information distribution,
where a select group holds information that is not readily available to others. In the context of Signaling
Theory, companies employ signals in the form of financial ratios and public disclosures regarding their
performance and prospects to communicate with external stakeholders, particularly investors, to achieve
specific objectives.
2.2 Financial Ratios
In this research, Signaling Theory serves as the foundation for investor decision-making. Stock prices are
utilized as the dependent variable (Y), while financial ratios represent the independent variables (X). The
financial ratios considered in this study include:
a.
Return on Assets (ROA)
Return on Assets (ROA) measures the relationship between a company's profit and the assets it has
invested in (Kashmir in Sembiring & Wulandari, 2023). This ratio also reflects the profit utilized for
company operations. According to Hanafi and Halim in Nafisah (2018), a lower ROA indicates poorer
company performance.
Previous research by Nafisah & Halim (2018) suggests that Return on Assets (ROA) has a positive
impact on firm value, proxied by stock prices. This indicates that as a company's ability to generate
profits from its total assets improves, its stock price tends to rise.
Formula: Return on Assets (ROA) = (Net Income) / (Total Assets)
b.
Return on Equity (ROE)
Return on Equity (ROE), also known as the Equity Return Ratio, measures the profitability of a
company's operations by comparing its net income after taxes (EAIT) to its equity. This ratio evaluates
the effectiveness of a company's management of its own capital. A higher ROE indicates better
performance and strengthens the position of the company's owners.
Formula: Return on Equity (ROE) = (Net Income) / (Total Equity)
c.
Debt to Equity Ratio (DER)
The Debt to Equity Ratio (DER) measures the proportion of a company's total debt to its equity
(Sulaeman, 2018). This ratio indicates the extent to which a company's assets are financed by debt. An
ideal DER is not necessarily high; it should align with ROE and risk. A higher DER may lead to a higher
ROE, but it also increases risk.
Previous research by Arviana and Lapoliwa (2013) suggests that Debt to Equity Ratio (DER) has a
significant impact on stock prices in property companies listed on the Indonesia Stock Exchange (IDX).
This indicates that as DER increases, leading to higher ROE, the company's stock price tends to follow
an upward trend.
Formula: Debt to Equity Ratio (DER) = (Total Debt) / (Total Equity)
d.
Price to Book Value (PBV)
Price to Book Value (PBV) is a ratio that estimates a company's stock price relative to its book value.
According to Hayat in Sania (2022), this ratio reflects the company's value in relation to what has been
or is being invested by the company's owners. A higher ratio indicates a greater assumption of wealth
held by the company. If the market price is below the book value (undervalued), investors perceive the
company as undervalued by the market. Conversely, if the market price is above the book value
(overvalued), investors perceive the company as overvalued by the market.
Previous research by Arviana (2013) suggests that PBV has an impact on stock prices in the property
sector. However, other studies, such as Hayati (2013), indicate that PBV does not have a significant
impact on stock prices in food and beverage subsector companies. Astuti (2024) found that PBV has a
significant impact on stock prices in LQ 45 companies.
Formula: Price to Book Value (PBV) = (Market Price per Share) / (Book Value per Share)
2.3 Stock Price
The market price is the stock price determined by market forces (supply and demand). In this study, the
closing price is used as the market price
3.
RESEARCH METHOD
This research employs a quantitative analysis approach using a panel data linear regression model within the
EViews software environment. Panel data is a unique type of data that combines time series and cross-sectional
data, offering a comprehensive perspective for analysis. The data utilized in this study is secondary data, gathered
from reliable third-party sources such as company financial reports, the Indonesia Stock Exchange (IDX), Yahoo
Finance, and other financial data providers.
The population of this study encompasses all banking companies listed on the Indonesia Stock Exchange (IDX)
during the specified research period. The total population consists of 47 issuers. To select a representative sample,
purposive sampling is employed. Purposive sampling is a non-probability sampling technique that involves
selecting samples based on predetermined criteria or considerations. The criteria established for sample selection
include:

Issuers listed on the IDX FINANCE sector

Issuers that have been listed continuously without delisting during the period of 2020-2023

Issuers that have consistently published financial reports from Q1 2020 to Q4 2023
Applying these criteria, a sample of 19 companies was identified: PT. Bank Raya Indonesia Tbk.; PT Bank Central
Asia Tbk.; PT Bank Negara Indonesia Tbk.; PT Bank Rakyat Indonesia Tbk.; PT Bank Danamon Indonesia Tbk.;
PT Bank Pembangunan Daerah Banten Tbk.; PT Bank QNB Indonesia Tbk.; PT Bank Mandiri (Persero) Tbk.;
PT Bank Bumi Arta Tbk.; PT Bank CIMB Niaga Tbk.; PT Bank Maybank Indonesia Tbk.; PT Bank Permata
Tbk.; PT Bank Of India Indonesia Tbk.; PT Bank Victoria Internasional Tbk.; PT Bank China Construction Bank
Indonesia Tbk.; PT Bank Mega Tbk.; PT Bank OCBC NISP Tbk.; PT Bank Pan Indonesia Tbk.; PT Bank Woori
Saudara Indonesia 1 Tbk.
The secondary data required for this study was gathered from various reliable sources, including Company
Financial Reports, Indonesian Stock Exchange (IDX), Yahoo Finance, Other Financial Data Providers.
The prepared data was subjected to statistical analysis using the EViews software. The primary analytical tool
employed was the panel data linear regression model. This model allowed for the examination of the relationship
between the dependent variable (stock price) and the independent variables (financial ratios) while controlling for
the effects of time and individual companies.
4.
RESULT & DISCUSSION
4.1 RESULT
The result of the estimate using Ficed Effect Model (FEM) on Eviews 12 are;
Picture 4.1 : Fixed Effect Model (FEM) result
Dependent Variable: YY
Method: Panel Least Squares
Date: 05/23/24 Time: 02:36
Sample: 2020Q1 2023Q4
Periods included: 16
Cross-sections included: 19
Total panel (balanced) observations: 304
Variable
Coefficient
Std. Error
t-Statistic
Prob.
C
XX1
XX2
XX3
XX4
1580.515
-19.09480
26.90220
-71.28609
304.9272
150.7394
31.13675
6.294644
29.53660
31.68922
10.48508
-0.613256
4.273824
-2.413483
9.622428
0.0000
0.5402
0.0000
0.0164
0.0000
Effects Specification
Cross-section fixed (dummy variables)
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.940888
0.936260
526.2010
77805398
-2324.167
203.3039
0.000000
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat
1866.553
2084.230
15.44189
15.72311
15.55438
0.500163
Regression:
YY = C(1) + C(2)*XX1 + C(3)*XX2 + C(4)*XX3 + C(5)*XX4 + [CX=F]
YY
=
1580.51526858
-
304.927247941*XX4 + [CX=F]
19.0947979406*XX1
+
26.9022010733*XX2
-
71.2860903499*XX3
+
The result can be define as;

The coefficient of determination (R-squared) of 0.940888 indicates a strong explanatory power of the
regression model.

ROA (X1): The negative and insignificant t-statistic (-0.613256) and Prob. value (0.5402 > 0.05) suggest
that ROA does not have a statistically significant impact on stock prices.

ROE (X2): The positive and significant t-statistic (4.273824) and Prob. value (0.0000 < 0.05) indicate
that ROE has a statistically significant positive impact on stock prices.

DER (X3): The negative and insignificant t-statistic (-2.413483) and Prob. value (0.0164 < 0.05) suggest
that DER does not have a statistically significant impact on stock prices.

PBV (X4): The positive and significant t-statistic (9.622428) and Prob. value (0.0000 < 0.05) indicate
that PBV has a statistically significant positive impact on stock prices
4.2 DISCUSSION
The findings of this study reveal diverse influences from the examined variables. This highlights that
investment decisions are often based on a multitude of factors, including the signals conveyed by companies
through their financial statements.
In the context of the banking subsector, the results demonstrate that ROA has a negative and insignificant
effect on stock prices, while ROE and PBV exhibit positive and significant effects. DER, on the other hand,
displays a positive but insignificant impact on stock prices. These findings can serve as valuable insights for
investors in making informed investment decisions. They underscore the role of financial ratios in reflecting
company performance and influencing stock prices.
A limitation of this study lies in the restricted scope of the variables examined. Financial performance
encompasses a broader range of parameters that could be further investigated to assess their impact and
significance on stock prices, leading to more comprehensive and relevant results. Additionally, future
research could explore a broader range of research subjects, expanding beyond the current focus on issuers
within the IDXFINANCE index during the 2020-2023 period.
5.
CONCLUTION & SUGGESTION
5.1 CONCLUTION
This research sought to investigate the impact of Return on Assets (ROA), Return on Equity (ROE), Debt to
Equity Ratio (DER), and Price to Book Value (PBV) on stock prices in the banking subsector of the Indonesia
Stock Exchange (IDX). The key findings are summarized as follows:
1.
ROA and Stock Prices: ROA exhibits a negative and insignificant relationship with stock prices in the
banking subsector. This implies that even if companies possess a high ability to generate profits from
their assets (high ROA), this does not always translate into an increase in their stock prices.
2.
ROE and Stock Prices: ROE demonstrates a positive and significant influence on stock prices within
the banking subsector. This indicates that the higher a company's capacity to generate profits from its
equity (high ROE), the higher its stock price tends to be. This suggests that investors place greater value
on companies that can yield higher returns on the capital they invest.
3.
DER and Stock Prices: DER displays a negative and significant impact on stock prices in the banking
subsector. This implies that the higher a company's debt level relative to its equity (high DER), the lower
its stock price tends to be. This is understandable as investors perceive higher risk associated with
companies carrying substantial debt.
4.
PBV and Stock Prices: PBV exhibits a positive and significant relationship with stock prices in the
banking subsector. This indicates that the higher a company's book value compared to its market stock
price (high PBV), the higher its stock price tends to be. This suggests that investors are willing to pay a
premium for shares of companies with high book values.
These findings can provide valuable insights for investors making investment decisions in the banking sector.
Investors can consider financial ratios such as ROA, ROE, DER, and PBV as indicators to assess a company's
performance and future prospects.
5.2 SUGGESTION
This research can be extended by utilizing a larger sample size and a more extended time period. Additionally,
future studies can explore the influence of other variables that may affect stock prices, such as macroeconomic
and industry conditions.
REFERENCES
Books
Abdalloh, I. (2020). Pasar Modal Syariah. PT Elex Media Komputindo
AMSI, M. (2020). Saham Syariah Kelas Pemula. PT Elex Media Komputindo
Basuki, A, T., Prawoto, N. (2015) Analisis Regresi Dalam Penelitian Ekonomi & Bisnis (Dilengkapi Aplikasi
SPSS & Eviews). RajaGrafindo Persada.
Herispon. (2016) Analisis Laporan Keuangan. Akademi Keuangan & Perbankan Riau (AKBAR)
Sulaeman, D. (2019). Manajemen Keuangan
Journal
Arviana, N., Lapoliwa, N. (2013). Pengaruh ROA, DER, EPS, dan PBV Terhadap Harga Saham (Studi Pada
Perusahaan Go Publick Sektor Properti di BEI Tahun 2009-2011). Ultima Accounting: Jurnal Ilmu
Akuntansi. 5(2).
Arviana, N., Lapoliwa, N. (2013). Pengaruh ROA, DER, EPS, PER, dan PBV Terhadap Harga Saham (Studi Pada
Perusahaan Go Public Sektor Properti Di BEI Tahun 2009-2011). Ultima Accounting: Jurnal ilmu
Akuntansi, 5(2).
Aryadiyanto, A., dkk. (2020). Pengaruh Return On Assets, Return On Equity, Earning Per Share Dan Price To
Book Value Terhadap Harga Saham. Jurnal Bisnis dan Akuntansi Unsurya, 5(1).
Astuti, A P., Setiawati, E. (2024). Pengaruh EPS, ROA, DER dan PBV Terhadap Harga Saham (Studi Kasus Pada
Perusahaan LQ 45 Yang Terdaftar Di Bursa Efek Indonesia Tahun 2018-2021). Jurnal Rimba: Riset Ilmu
Manajemen Bisnis dan Akuntansi, 2(2).
Daffa, M., Salsabila, S., Yusrina, R., Riyanto. (2023). Struktur dan Pelaku Pasar Modal. Jurnal Kajian Ekonomi
& Bisnis Islam, 4(4), 1171-1180.
Hayati, N. (2013). Pengaruh Return On Assets, Return On Equity, Earning Per Share, Price Earning Ratio, dan
Price to Book Value Terhadap Harga Shaam Pada Perusahaan Manufaktur Sub Sektor Industri Makanan
Dan Minuman Di Bursa Efek Indonesia. Jurnal Spread: Jurnal Ilmiah Bisnis dan Keuangan, 3(1).
Nafisah, N I., dkk. (2018). Pengaruh Return On Assets (ROA), Debt To Equity Ratio(Der), Current Ratio (CR),
Return On Equity (ROE), Price Earning Ratio (PER), Total Assets Turnover (TATO), Dan Earning Per
Share (EPS) Terhadap Nilai Perusahaan Manufaktur Yang Terdaftar Di BEI Tahun 2014-2015. Jurnal
Riset Mahasiswa Akuntansi, 6(2).
Rahmani, A N. (2020) Dampak Covid-19 Terhadap Harga Saham Dan Kinerja Keuangan Perusahaan (Studi Pada
Emiten LQ45 yang Listing di BEI). Kajian Akuntansi, 21(2), 252-269.
Sembiring, R P B., & Wulandari, I. (2023). Pengaruh ROA, ROE, dan NPL terhadap Likuiditas Perbankan. Jurnal
Ekonomi Pembangunan STIE Muhammadiyah Palopo, 9(2).
Sholikah, F., dkk. (2022). Peranan Pasar Modal Dalam Perekonomian Negara Indonesia. ABITRASE: Jurnal of
Economics and Accounting, 3(2), 341-345.
Sondakh, P., dkk. (2019). Pengaruh Struktur Modal (ROA, ROE dan DER) Terhadap Nilai Perusahaan (PBV)
Pada Perusahaan Sektor Properti Yang Terdaftar Di BEI (Periode 2013-2016). Jurnal EMBA: Jurnal
Riset Ekonomi, Manajemen, Bisnis dan Akuntansi, 7(3), 3079-3088.
Utami, M R., & Darmawan, A. (2018). Pengaruh DER, ROA, ROE, EPS, dan MVA Terhadap Harga Saham Pada
Indeks Saham Syariah Indonesia. Journal Of Applied Managerial Accounting, 2(2), 77-89.
Widayanti, R., Colline, F. (2017). Pengaruh Rasio Keuangan Terhadap Harga Saham Perusahaan LQ 45 Periode
2011-2015. Jurnal Ilmiah Mahasiswa FEB, 21(1).
Sania, T. (2022). Pengaruh DER, ROA, EPS, ROE, DAR dan PBV Terhadap Harga Saham Pada Perusahaan
Subsektor Makanan dan Minuman di BEI. Jurusan Manajemen, Fakultas Ekonomi dan Bisnis,
Universitas Islam Negeri Syarif Hidayatullah Jakarta.
Other Resources
www.bappenas.go.id
www.bofis.id
www.bridanareksasekuritas.co.id
www.idx.co.id
www.ksei.co.id
www.yahoo.finance.com