Effect Of Economic Value Added And Profitability Ratio To Stock Prices In Insurance Companies On The Indonesia Stock Exchange In 2011-2015

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Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a wide range of companies listed, including insurance companies. The performance of insurance companies is a crucial factor in determining the stock prices of these companies. In this study, we aim to investigate the effect of Economic Value Added (EVA), Return on Assets (ROA), Return on Equity (ROE), and Earning Per Share (EPS) on stock price movements in insurance companies listed on the IDX during the period 2011-2015.

Literature Review

EVA is a measure of financial performance that measures the added value created by the company above the capital costs used. It is a key indicator of a company's ability to generate profits exceeding the cost of capital used, thereby increasing the company's value in the eyes of investors. ROA is a profitability ratio that measures the company's ability to generate profits from its assets. ROE shows the company's ability to generate profits from the capital invested by shareholders. EPS is a ratio that shows the profitability of companies per share in circulation.

Methodology

This study uses secondary data obtained from the financial statements of insurance companies listed on the IDX through the website www.idx.co.id. The sampling technique used is purposive sampling, by selecting 10 companies from 11 insurance companies listed on the IDX during that period. The analysis model used is multiple linear regression.

Results

The results showed that simultaneously, EVA, ROA, ROE, and EPS have a significant influence on stock price movements. However, partially, only ROE and EPS have a significant influence on stock prices. EVA and ROA have no significant influence on the stock price of insurance companies listed on the IDX during the 2011-2015 period.

Discussion

EVA is a measure of financial performance that measures the added value created by the company above the capital costs used. However, in this study, EVA has no significant influence on stock prices. This might be due to several factors, such as the complexity of EVA calculations and the difficulty of interpreting EVA results.

ROA is a profitability ratio that measures the company's ability to generate profits from its assets. However, in this study, ROA has no significant influence on stock prices. This might be due to several factors, such as the fact that ROA does not take into account the capital costs used by the company.

ROE is a profitability ratio that shows the company's ability to generate profits from the capital invested by shareholders. In this study, ROE has a significant influence on stock prices. This might be due to several factors, such as the fact that ROE is a key indicator of a company's ability to generate profits from shareholder capital.

EPS is a ratio that shows the profitability of companies per share in circulation. In this study, EPS has a significant influence on stock prices. This might be due to several factors, such as the fact that EPS is a key indicator of a company's ability to generate profits per share in circulation.

Implications for Investors

This study has important implications for investors who want to invest in insurance company shares. Investors need to pay attention to the movement of ROE and EPS as the main indicator of the profitability of insurance companies. Although EVA and ROA partially are not significant, investors still need to consider both as additional indicators to assess the company's overall performance.

Conclusion

This study shows that ROE and EPS have a significant influence on the stock price of insurance companies on the IDX. Investors need to pay attention to these two ratios as key indicators in determining investment strategies in the insurance sector. This study also provides important information for insurance company managers to increase profitability and company value in the eyes of investors.

Limitations of the Study

This study has several limitations. Firstly, the study only focuses on insurance companies listed on the IDX during the period 2011-2015. Secondly, the study uses secondary data obtained from the financial statements of insurance companies listed on the IDX. Finally, the study uses multiple linear regression as the analysis model.

Future Research Directions

This study provides several directions for future research. Firstly, the study can be extended to include other types of companies listed on the IDX. Secondly, the study can use primary data obtained from insurance companies listed on the IDX. Finally, the study can use other analysis models, such as logistic regression or decision tree analysis.

References

  • [1] www.idx.co.id
  • [2] Economic Value Added (EVA) definition
  • [3] Return on Assets (ROA) definition
  • [4] Return on Equity (ROE) definition
  • [5] Earning Per Share (EPS) definition

Appendices

  • Appendix A: List of insurance companies listed on the IDX during the period 2011-2015
  • Appendix B: Financial statements of insurance companies listed on the IDX during the period 2011-2015
  • Appendix C: Results of multiple linear regression analysis

Q: What is Economic Value Added (EVA) and how does it affect stock prices?

A: EVA is a measure of financial performance that measures the added value created by the company above the capital costs used. In this study, we found that EVA has no significant influence on stock prices. This might be due to several factors, such as the complexity of EVA calculations and the difficulty of interpreting EVA results.

Q: What is Return on Assets (ROA) and how does it affect stock prices?

A: ROA is a profitability ratio that measures the company's ability to generate profits from its assets. In this study, we found that ROA has no significant influence on stock prices. This might be due to several factors, such as the fact that ROA does not take into account the capital costs used by the company.

Q: What is Return on Equity (ROE) and how does it affect stock prices?

A: ROE is a profitability ratio that shows the company's ability to generate profits from the capital invested by shareholders. In this study, we found that ROE has a significant influence on stock prices. This might be due to several factors, such as the fact that ROE is a key indicator of a company's ability to generate profits from shareholder capital.

Q: What is Earning Per Share (EPS) and how does it affect stock prices?

A: EPS is a ratio that shows the profitability of companies per share in circulation. In this study, we found that EPS has a significant influence on stock prices. This might be due to several factors, such as the fact that EPS is a key indicator of a company's ability to generate profits per share in circulation.

Q: Why did you choose to study insurance companies listed on the Indonesia Stock Exchange (IDX) during the period 2011-2015?

A: We chose to study insurance companies listed on the IDX during the period 2011-2015 because this period is significant in the history of the IDX, with the Indonesian economy experiencing rapid growth and development. Additionally, the insurance industry is a key sector in the Indonesian economy, and understanding the factors that affect stock prices in this industry can provide valuable insights for investors and policymakers.

Q: What are the implications of this study for investors?

A: This study has important implications for investors who want to invest in insurance company shares. Investors need to pay attention to the movement of ROE and EPS as the main indicator of the profitability of insurance companies. Although EVA and ROA partially are not significant, investors still need to consider both as additional indicators to assess the company's overall performance.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the study only focuses on insurance companies listed on the IDX during the period 2011-2015. Secondly, the study uses secondary data obtained from the financial statements of insurance companies listed on the IDX. Finally, the study uses multiple linear regression as the analysis model.

Q: What are the future research directions for this study?

A: This study provides several directions for future research. Firstly, the study can be extended to include other types of companies listed on the IDX. Secondly, the study can use primary data obtained from insurance companies listed on the IDX. Finally, the study can use other analysis models, such as logistic regression or decision tree analysis.

Q: What are the practical implications of this study for insurance company managers?

A: This study provides important information for insurance company managers to increase profitability and company value in the eyes of investors. Managers need to pay attention to the movement of ROE and EPS as the main indicator of the profitability of insurance companies. Additionally, managers need to consider EVA and ROA as additional indicators to assess the company's overall performance.

Q: What are the policy implications of this study for the Indonesian government?

A: This study provides important information for the Indonesian government to develop policies that support the growth and development of the insurance industry. The government can use the findings of this study to develop policies that promote the use of ROE and EPS as key indicators of the profitability of insurance companies. Additionally, the government can use the findings of this study to develop policies that support the development of the insurance industry in Indonesia.