Is Financial Performance Reflected in Stock Prices?

Abstract

Investors need relevant information for making investment decisions in the stock market. Therefore, we need an approach to analyze stock prices, one of which is the fundamental approach. Fundamental approach basing its analysis on the assumption that stock prices reflect the fundamental performance of a company. Is the financial performance reflected in stock prices? The purpose of this study was to determine the effect of the financial performance of the stock price. Financial performance is measured using the variables of liquidity, profitability, growth, and market valuation. The population of this study is a non-banking company registered in the Indonesia Stock Exchange and incorporated in LQ45 Index in the period 20112016.

Sampling was done by using the purposive technique. Furthermore, the data were analyzed using multiple linear regression methods. At the 0.05 level of significance, the results showed that only market valuation variables that significantly influence stock prices. Meanwhile, the variable liquidity, profitability, and growth have no effect on stock prices. These results indicate that the share price reflects the market valuation of the company's shares.