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POST-MERGER FINANCIAL PERFORMANCE OF ISLAMIC BANKS. INVESTIGATING THE
IMPACT OF PROFITABILITY INDICATORS ON STOCK PARICE MOVEMENT
PhD
Hamid Waqas
Westminster International University in Tashkent
ORCID: 0000-0003-1319-533X
PhD
Umarov Hasan
Westminster International University in Tashkent
ORCID: 0000-0001-5852-9669
Buriev Abdul Aziz
Westminster International University in Tashkent
ORCID: 0009-0006-6757-5361
Abstract
.
This study explores the impact of financial metrics, specifically Return on Assets
(ROA) and Return on Equity (ROE), on stock values in Islamic banking in Pakistan. Islamic
banking in Pakistan lacks empirical research on how financial indicators like ROA and ROE affect
stock values, creating a gap in understanding crucial performance metrics for investors. The
study adopts a quantitative method, analyzing secondary statistics from the Pakistan Stock
Exchange and Meezan Bank websites for the period 2016
–
2022. Linear regression in EViews is
applied to assesses the relationship between ROA, ROE, and stock prices of the Bank. Results of
the study indicates that the stock prices are positively influenced by returns and equity, however,
impact of return on asset is statistically significant at 10 percent confidence interval. The study
is limited to data from PSB and IMBS, restricting its generalizability to other banks or markets.
Study suggests investors should prioritize ROA and ROE metrics when evaluating stocks in
Islamic banking, as they are essential for understanding performance and making informed
decisions.
Keywords
:
Islamic banking, stock value, linear regression, financial indicators.
I
SLOM BANKLARINING QO‘SHILISHDAN KEYINGI MOLIYAVIY KO‘RSATKICHLARI:
FOYDALILIK KO‘RSATKICHLARINING AKSIYALAR NARXI HARAKATIGA TA’SIRINI
O‘RGANISH
i.f.n.
Hamid Vaqas
Toshkent shahridagi Xalqaro Vestminster universiteti
i.f.n.
Umarov Xasan
Toshkent shahridagi Xalqaro Vestminster universiteti
Buriev Abdul Aziz
Toshkent shahridagi Xalqaro Vestminster universiteti
Annotatsiya
.
Ushbu tadqiqot Pokistondagi islom banklarida moliyaviy ko‘rsatkichlar,
xususan, aktivlar rentabelligi (ROA) va kapital rentabelligi (ROE) ning aksiyalar qiymatiga
ta’sirini o‘rganadi. Pokistonda islomiy banklar faoliyatida ROA va ROE kabi moliyaviy
UOʻK:
330.142.23
411-426
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III SON. 2025
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ko‘rsatkichlarning aksiyalar qiymatiga qanday ta’sir qilishi bo‘yicha empirik tadqiqotlar
yetishmaydi, bu esa investorlar uchun muhim bo‘lgan samaradorlik mezonlarini tushunishda
bo‘shliqni yuzaga keltiradi.
Tadqiqotda miqdoriy yondashuv qo‘llanilgan bo‘lib, 2016–
2022 yillar
davridagi ikkilamchi statistik ma’lumotlar Pokiston Fond birjasi va Meezan Bank veb
-saytlaridan
olingan. ROA, ROE va bank aksiyalari narxi o‘rtasidagi bog‘liqlikni baholash uchun EViews
dasturida chiziqli regressiya tahlili amalga oshirilgan.
Tadqiqot natijalari shuni ko‘rsatadiki,
aksiyalar narxiga rentabellik va kapital ijobiy ta’sir ko‘rsatadi, biroq ROA ko‘rsatkichining ta’siri
10 foizlik ishonch oralig‘ida statistik jihatdan ahamiyatli hisoblanadi.
Tadqiqot faqat Pokiston
Islom Banki (PSB) va Meezan Bank (IMBS) ma’lumotlariga asoslangan bo‘lib, natijalarni boshqa
banklar yoki bozorlarga umumlashtirish imkoniyati cheklangan.
Tadqiqot xulosasiga ko‘ra,
investorlar islomiy banklar aksiyalarini baholashda ROA va ROE ko‘rsatkichlariga alohida e’tibor
qaratishlari lozim, chunki bu ko‘rsatkichlar bankning moliyaviy samaradorligini tushunish va
asosli investitsiya qarorlari qabul qilishda muhim ahamiyatga ega.
Kalit soʻzlar:
islom
bank ishi, aksiyalar narxi, chiziqli regressiya, moliyaviy koʻrsatkichlar
.
ФИНАНСОВЫЕ ПОКАЗАТЕЛИ ИСЛАМСКИМ БАНКОВ ПОСЛЕ СЛИЯНИЯ.
ИССЛЕДОВАНИЕ ВЛИЯНИЯ ПОКАЗАТЕЛЕЙ РЕНТАБЕЛЬНОСТИ НА ДВИЖЕНИЕ
СТОИМОСТИ АКЦИЙ
к.э.н.
Хамид Вакас
Международный Вестминстерский университет в городе Ташкенте
к.э.н.
Умаров Хасан
Международный Вестминстерский университет в городе Ташкенте
Буриев Абдул Азиз
Международный Вестминстерский университет в городе Ташкенте
Аннотация
.
В этом исследовании изучается влияние финансовых показателей, в
частности рентабельности активов (ROA) и рентабельности капитала (ROE), на
стоимость акций в исламском банкинге в Пакистане. Исламскому банкингу в Пакистане
не хватает эмпирических исследований того, как финансовые показатели, такие как ROA
и ROE, влияют на стоимость акций, что создает пробел в понимании важнейших
показателей эффективности для инвесторов. В исследовании используется
количественный метод, анализирующий вторичную статистику с веб
-
сайтов
Пакистанской фондовой биржи и Meezan Bank за период 2016–2022 гг. Линейная регрессия
в EViews применяется для оценки взаимосвязи между ROA, ROE и ценами акций банка.
Результаты исследования показывают, что цены акций положительно зависят от
доходности и капитала, однако влияние доходности активов статистически значимо
при 10
-
процентном доверительном интервале. Исследование ограничено данными PSB и
IMBS, что ограничивает его обобщение на другие банки или рынки. Исследование
показывает, что инвесторам
следует отдавать приоритет показателям
рентабельности активов и рентабельности собственного капитала при оценке акций в
исламском банкинге, поскольку они необходимы для понимания эффективности и
принятия обоснованных решений.
Ключевые слова:
исламский банкинг, стоимость акций, линейная регрессия,
финансовые показатели.
Introduction.
Islamic banking has undergone significant transformations and adaptations, making it a
dynamic and innovative industry (Iqbal et al., 2023). This is largely because Shariah-compliant
banks play a critical role in managing public funds efficiently, contributing significantly to
economic development (Iqbal et al., 2023; Hamid et al., 2023). In Shariah banking, the primary
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function is not just profiting generation but also creating value by aligning financial operations
with Islamic principles. Over time, as banks expand and make their offerings more accessible
to the general public, financial performance becomes a critical indicator for evaluating their
success and sustainability.
The role of Shariah banking is pivotal in driving economic growth and development, and
by taking the organization public, it creates an opportunity for investors to buy into the future
potential of the institution. Through listing on the stock exchange, the financial performance
of these banks can be analyzed in depth, enabling better resource management and increasing
the availability of capital to further stimulate growth (Putri et al., 2020). Consequently, Shariah
banks are well-positioned to become valuable instruments for advancing economic
prosperity.
The capital markets, particularly stock exchanges like the Pakistan Stock Exchange
(PSE), have become increasingly vital as they provide an avenue for financial institutions and
investors to raise capital and generate wealth (Putri et al., 2020). As stock prices fluctuate
based on market dynamics, they reflect the economic health of the organizations involved.
This creates a feedback loop where the financial performance of a bank directly influences its
stock price and, by extension, its ability to raise funds and grow further.
With the increasing number of financial participants in the PSE, the exchange has the
potential to evolve into a more prosperous and influential market. This growing activity
indicates a positive trajectory, as financial institutions seek to maximize profit potential by
increasing market activity and improving their financial health (Musa et al., 2021). Investors,
as well, analyze such financial performance measures as return on property (ROA) and return
to equity (ROE) to make a good decision-making choice. The PSE, therefore, holds significant
promise for continued growth and investor engagement, which in turn can lead to a more
stable and profitable financial landscape (Qamar et al., 2023).
The decision to distribute profits is another aspect that can directly impact financial
performance (Gunanta et al., 2021). It is a delicate balancing act for the board of directors, as
profit distribution decisions can influence a bank's future profitability and stock prices. Thus,
the management of financial resources and the allocation of profits need careful consideration
to ensure sustainable growth and long-term success. A failure to manage profits effectively
could undermine investor confidence, affecting stock prices negatively (Gunanta et al., 2021).
For investors financial records are one of the main tools to examine financial condition
and future of the organization. By assessing financial statements, particularly profitability
indicators like ROE and ROA, investors can gauge whether an organization is a sound
investment (Sarwar et al., 2022). The relationship between an organization's financial
performance and its stock prices cannot be overstated, as investors rely on these metrics to
assess risk and potential returns (Iqbal et al., 2023).
Moreover, risk management plays a pivotal role in stock market operations (Zheng et al.,
2022). Investors seek information about an organization's financial stability, risk factors, and
growth potential before making investment decisions. A comprehensive financial report that
provides transparent, accurate, and reliable information helps reduce risks and enhances
security for investors. Factors such as stock prices, profitability margins, and overall financial
health influence stock market trends. Therefore, a clear understanding of these financial
metrics is essential for both investors and the organizations themselves (Zheng et al., 2022).
Apart from the internal financial performance metrics, macroeconomic factors such as
inflation rates and currency fluctuations also impact stock prices (Egbuhuzor et al., 2021).
These external factors can shape investor perceptions and influence their decisions. For
instance, the impact of inflation on purchasing power can affect consumer behavior, while
exchange rate volatility can influence the cost of doing business internationally. Recognizing
these macroeconomic influences is critical to understanding the broader context in which
Shariah-compliant banks operate.
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Fundamental analysis remains a cornerstone in evaluating the potential of a stock,
especially in the context of Islamic banking (Hartono, 2008). By analyzing key financial ratios
such as ROE and ROA, investors can better understand a bank's profitability and efficiency
(Arifin, 2002). A high ROE generally signals an organization’s ability to generate substantial
returns from its equity, making it an attractive investment. Similarly, a strong ROA indicates
efficient management of assets, leading to better financial health and, ultimately, higher stock
prices (Ang, 1997).
Table 1
Share Value of Pakistan Shari’ah Bank Organization
Sr.
Year
Share Value (Closing)
1
2016
2.291
2
2017
2.301
3
2018
2.041
4
2019
1.781
5
2020
1.606
6
2021
1.341
7
2022
1.551
Source:
Statistics Secondary
–
2023.
Therefore, the present value of an organization is critical to evaluating its worth. In this
regard, the primary focus is on financial performance evaluation and assessment. Present
value is an essential tool to accurately measure an organization's value. Factors outside of the
organization's ratio have a greater effect, including local news that suggests that investors are
logical. From 2016 to 2022, Pakistan Shari’ah Bank will achieve the following overall values.
With the implementation of the right tools and strategies, Pakistan Shari’ah
Bank is predicted
to have a bright future ahead.
Picture 1.
Pakistan Shariat Bank Organization share price from 2016 to
2022.
Source:
Bar chart by the authors.
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Picture 2. The stock value of Pakistan Shari'ah Bank Organization from 2016 to 2022.
Source:
line graph by the authors.
For one period in 2021 or each of the following years, it would appear that there will be
an increase in the following year. This is Rs. 2.301/shares, but in the third year, this is Rs. 260
prices making Rs. 2.041/shares had a huge drop in the fourth year but then reverted back to
rupee again. The suggestion price continued decreasing on 31 December 2021 to be
1,781/shares to be correct, and in 2022 up to the next one (31 June, 2022) in 2022. This
decrease in the value of the stock suggests that the company must focus on developing
strategies to ensure stable financial performance over a longer period of time. In addition to
examining a company's financial statements directly, Lestari et al. (2013); Tandelilin (2001)
recommend performing a financial ratio analysis. Financial ratio analysis can be a powerful
tool for evaluating financial performance. Investors consider profitability one of the most
significant indicators of future success. It is the ability of the investor's investment to provide
returns appropriate for or commensurate with the magnitude of the investor's expectations.
Ultimately, risk and return are two sides of the same coin, and investor success or failure is
determined by how they balance them.
The integration of Islamic banking institutions through mergers and acquisitions
presents a unique opportunity to analyze the effect of such corporate strategies on the
financial performance of these organizations. Mergers can potentially improve operational
efficiency, diversify offerings, and enhance profitability, but they can also introduce risks that
affect stock prices. This study seeks to explore how mergers in Shariah-compliant banks
influence financial metrics like ROA and ROE, which are critical to understanding their impact
on stock prices.
While the literature has extensively explored the importance of ROA and ROE in
evaluating financial performance, the specific impact of mergers within Islamic banking
institutions has not been studied in detail. This gap in the research presents an opportunity to
investigate the effects of mergers on the financial performance of Islamic banks, particularly
in the context of Pakistan’s Shariah
-compliant banking sector.
This study holds significant importance for several reasons: It fills a gap in existing
research regarding the impact of mergers on Islamic banking financial performance,
particularly in terms of ROA, ROE, and stock prices. The findings can provide valuable insights
for financial institutions, investors, and policymakers in understanding the dynamics of
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mergers within Islamic banking and their effect on market performance. The study can help
guide future corporate decisions, mergers, and acquisitions in the Islamic banking sector by
shedding light on the financial implications of such moves.
Literature review.
Financial performance refers to a high-level development that emphasizes firm
profitability. Studies in this meta-analysis focus on the three main categories of CFP: market-
based (monetary investor returns), accounting (accounting returns), and managerial
measures. Accounting-based measures such as income (EPS) per share, return on equity
(ROE), Return on Assets (ROA), Return on Sales (ROS), and Return on Investment (ROI) are
commonly used to assess the financial success of the organization. ROA and ROE are widely
recognized as basic metrics for assessing financial success in strategy research. According to
Dowell et al., Tobin's Q is a measure that takes into account not just a firm's return on assets
(ROA) or return on equity (ROE), but also its intrinsic value, emphasizing the importance of
being environmentally friendly. 2000. Organizational (nonmarket) actions do not attract
market responses. Instead, they are influenced by internal decision-making capacities and
managerial competence. The previous research uses share price admiration to emphasize
market-based indicators such as price-income ratio, per share price, and increased economic
performance of the organization. These actions focus on a company's financial performance,
disregarding the specific impacts of pro-environmental practices on financial performance.
Management is considered to have limited ability to impact market-based indicators. These
guidelines reflect the concept that investors are a crucial group of partners whose satisfaction
determines the firm's fate
The financial ratio is a measurement of an organization's show which should be clear
from its ability to produce profits, indicating the ability to meet each of its commitment and is
a component of the organization in creating value, which displays the ability of the
organization in the future (Pahlevi et al, 2022). The organization should check its financial
statements that determine their overall welfare. Financial ratio can be assessed by checking
how operating activities compare with others. Financial ratios provide valuable insights into
an organization’s performance, future potential and how it compares to other organizations
(Iqbal et al., 2023). Mulyadi (2012) proposes that monetary ratios can be utilized to assess
different factors of an organization, such as operational activities, organizational structure and
personal performance. These ratios measure how well the organization fulfill its objectives
and guidelines. Munawir (2012) suggest that monetary factors play an important role in
assessing solvency and liquidity. A few of the economic indicators analyzed include business
expansion, typical salaries, the overall size of enterprises, and the current status of operational
funds (Rolianah et al., 2021).
Globalization has intensified industry competition. Therefore, various criteria are
considered when evaluating corporations. Every financial actor in the market must identify
the factors that limit the financial performance of companies when evaluating their
performance. Prospective investors assess organizations' financial performance to make
sound investment decisions. Company financial performance are quite significant (Fahmi,
2015). Depending on the organization, these borders are either indicators initiated by the
organization or comprehensive financial indicators. Statistical ratios, as stated by Iqbal et al.
(2023), are vital benchmarks that provide essential guidance for players on the financial
market. The relationship between the financial performance of companies and numerous
indicators is discussed in multiple studies. Certain studies concentrate on the characteristics
that influence financial performance, while others examine the relationship between failure
reasons and financial indicators. During COVID-19 and found a notable and favorable
correlation between profitability, which is one of the measures of financial performance, and
the size of the business. Kosa, Lang, and Netter conducted a study examining corporations'
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financial performance. The review analyzed the financial performance of organizations during
COVID-19. It revealed that organizations implemented strategic changes during periods of low
performance. Consequently, they reduced the number of employees, limited their areas of
operation, and cut various expenses. A study conducted by Irawati (2006) analyzed the
correlations between different financial indicators and stock returns on the NYSE and AMEX
stock exchanges.
Roliah et al. (2021) It unequally shows the importance of returning on property (ROA)
as an important metric to assess the success of the company and highlights the need to accept
important importance while measuring performance. The formula (ROA) used to calculate the
returns on assets is as follows: Return (ROA) on assets is determined by dividing the net
income by total assets and multiplying the quotient by 100.
Investors often rely on an organization's financial data to decide whether to stay
invested or consider other opportunities. Having accurate financial data is absolutely essential
to organization success. Having a positive ratio within an organization can increase business
value. Therefore, it is crucial for organizations to ensure that they maintain precise business
records in order to improve their overall value as a company. Investors will choose to invest
their funds in the organization, which will in turn increase its share value based on its
importance. Or to put it another way, an organization's value influences its stock value.
Ultimately, accurate financial data is key to organization success (Hutabarat et al., 2021). In
contrast, knowledge of an or
ganization’s cash flow ratios may be used for the following uses:
1.
Analyzing an organization's accomplishments over a predetermined period of
time determines its success in carrying out its responsibilities. This evaluation can help the
organization identify areas of improvement and success.
2.
To consider the association's size as a whole and assess each section's
dedication to achieving the organization's overall goals. Overall, this evaluation can provide
the organization with valuable insights into its performance and how to move forward.
3.
To be used as an explanation for future operating procedures. Therefore, this
evaluation is essential to ensure long-term success.
4.
To guide the organization's overall operations, certain divisions or components
of the organization, and the decision-making process. This evaluation is essential to the
success of a business and should be conducted regularly.
5.
To act as the basis for investment policies to increase company productivity and
efficiency. Regularly conducted evaluations are, therefore, necessary for any organization to
ensure its future success.
Share value, according to Dividmojo et al. (2020), refers to the value of an individual's
ownership position in a business. One of the many variations in share values on the capital
market is the nominal price that the issuer establishes by valuing each share issued. This small
value is shown on the share sheet. Thus, a share value is calculated based on the issuer's
nominal price. Before the cost is reflected in a stock trade, it is known as the underlying cost.
The amount of this initial price will be determined by the agreement between the underwriter
and the issuer. Overall, the nominal price is a critical variable to consider when analyzing the
capital market. Market value is the selling price agreed upon by investors. After the proposal
is filed in the stock exchange, the market price is determined. Finally, the market value is the
one that investors are ready to pay for stock. The sellers demand value from customers during
business hours, known as the first cost. At the end of the first day, the price arrived by buyers
and vendors (Videiadmojo, 2000). The market value can be accurately determined through
interaction between buyers and sellers (Taufic et al., 2010; Dalam et al., 2019).
Musdlifa et al. (2015) Suppose the value of shares can be used as a proxy for stock price.
As a result, no one can conclude that the price of stock is an excellent indicator of an
organization's financial health. Share prices are related to the following values: The book price
is the value of a proposal according to the organization accounting. Investors with an offer
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hold the book value per share. Therefore, the book value is an important metric to consider
investors when analyzing a company. On the other hand, the market price, a proposal value
on a financial exchange. This market has been determined by the demand and supply of the
cost of the participants. In short, the market value is an objective reflection of the collective
decision of the market to buy a property.
Beneficiary, which refers to a company's ability to make money, affects its dividend
policy. Ultimately, a company's dividend policy is largely determined by its profitability. The
benefits available for investors will also be very important if the organization has a high
productivity level as it will also get high benefits. Beneficiary is an important factor when
evaluating dividend policy. According to Bangun et al, dividend payment for shareholders or
allotted income. (2012), are in proportion to the volume of accessible benefits for
shareholders. Profits in dividend policy are an important factor.
Banking management capacity to simplify ROA will increase banking profitability and
promote shareholder returns. As a result, the size or value of the ROA ratio will directly affect
the income and stock price of the organization (Hartono, 2008). The more modest the ROA
value or ratio, the better a bank that manages its resources as a percentage. When the property
is under control, the profit will be more, and shareholders will benefit from effective
operations. Banking management should achieve higher ROA ratios to maximize profits and
shareholder returns. In this method, it is easy to observe that the ROA percentage and stock
costs have a negative relationship. When the ROA ratio is low or small, the stock value
increases, and vice versa (Rolianah et al., 2021). Thus, the ROA ratio and stock costs are
directly correlated.
Islam emphasizes the importance of investors providing financial sources to Allah SWT
professionally. As such, investors should strive to adhere to Islam's teachings when investing
their money. Islamic investing can lead to financial success. It is for this reason that they
should use these funds for the proper purposes and invest their money in worthwhile things.
This way, investors can ensure their money is used ethically and responsibly. On the 29th.
Greetings to all! It is preferable to trade with mutual consent rather than steal money from
another. It is also critical not to murder one another or yourself. In conclusion, I believe that
mutual respect and care are the keys to creating successful and prosperous communities.
There is no doubt that Allah will treat you well at all times. According to
An-Nisa (4:29).
Therefore, it is essential to remember that Allah watches us and that our actions have
consequences.
Research methodology.
The
research was conducted using quantitative techniques to analyze the data. The
following data has been gathered for the purposes of this study from the authorized websites
of the Pakistan Stock Exchange (PSE) and the Pakistan Shari'ah Bank between (2016-2022).
Currently, the Pakistan Stock Exchange Organization's headquarters are located in the
Pakistan Stock Exchange Building, Meezan Bank's head office, or at the Pakistan Stock
Exchange Organization at KM 7, Karachi City, Region Sindh, which is the main office of the
organization (Iqbal et al., 2022; Iqbal et al., 2023). Currently, the present research focuses on
Meezan Bank, a Pakistani Shari'ah Bank established in 2003. As a result, analysis focused on
financial matrix (return to property and return on equity). This study was based on secondary
data and conducted using secondary sources. For this study, the following types of data will
be required: The analysis was conducted based on annual statistics on ROA and ROE for the
years 2021 and 2022 taken from the organization's website. This analysis of organization
financial ratios provides insight into performance and potential growth. A list of the share
values (closed values) of the Pakistan Shari'ah Bank between December 31, 2016, and 2022.
Data sources are available on the organization's official website, and you can access them from
there. For testing the method, several linear regression analyses were conducted using the
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EViews program. All in all, the data gained from these linear regression analyses was
invaluable for conducting the testing method.
Analysis and discussion of results.
The relationship between the two banks has been analyzed, using secondary data (time
series data) collected from the official website of Pakistan Shariat Bank about its relationship
with MBL. This study provides valuable insight into the nature and strength of the relationship
between MBL and Pakistan Sharia Bank. For financial reports for 2016 through 2022, the data
was analyzed using the EVISH 10 program using the Multiple Linear Recovery Process
(Multiple Linear Recovery Method) to analyze the financial report data. Through this analysis,
it was concluded that there is a positive relationship between MBL and Pakistan Islamic Bank.
Pre-Requisite of Classical Assumptions, As Well As Normality Tests.
Picture 3. shows the histogram's normality test results. Therefore, these assumptions
must be considered when conducting classical tests.
Picture 3. The histogram's normality test results.
Source:
Statistics Analyzed
–
2022.
As indicated in the Jarque-Bera probability ratio which stands at 0.71243, this indicates
that there is a difference between 1 and α (0.31 > 0.05). As a result, the results suggest that the
sample data is significantly different from the population data. Thus, a normal distribution of
residual data was observed in the study, which shows validity. Thus, the Jarque-Bera
probability ratio proves the study's validity.
4.2 Test of Linearity
Table 2.
Linearity t-Test Results
Reset Ramsey Assessment
Variable quantity Excluded: Estimates of Square Fitted
Value
d-f
Prob*
Statistic-t
2.278770
5
0.2111
Statistic-f
2.534363
(1, 5)
0.2121
Chance ratio
1.738121
1
0.00743
Source:
Statistics Analyzed - 2022
3
2
1
0
-300
-200
-100
0
100
200
300
400
Sequences: Residues
Test 31/Dec/23 31/Dec/23
Obs* 53
Mean
-2.145843
Median
-3.147891
Maximum
307.124
Minimum
-233.1444
Dev Std.
153.1554
Skewness
0.435311
Kurtosis
1.142533
Bera-Jarque
0.63011
Prob*
0.71243
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The F-Statistic Possibility value was 0.2111, which indicates that it is more than 0.05,
meaning that it is more than α (0.2111> 0.05). Therefore, it can be concluded that the F
-Statistic
probability price exceeds the α range. Because of this, we can describe the model as linear. In
all, the F-Statist
ic Possibility value clearly exceeds the α range of 0.05, indicating that the model
is linear.
4.3 Test of Multicollinearity
Table 3.
Test of Multicollinearity Result Inflation Factors Change
Variables
Coefficient Variance
Uncentered VIF
Centered VIF
Constant
43254456
5514.244
-
ROA
11021444
260.0242
6.534333
ROE
3511.114
4151.011
6.534333
Source:
Statistics Analyzed
–
2022
The centered value of the VIF is calculated based on the ROA variable and the ROE variable
having both a value of 6.53 < 10 respectively. This indicates that the two variables are
independent and can safely be used in regression analyses. Each of these independent variables
has a Centered VIF value that is fully smaller than (<) 10, which indicates that multicollinearity
issues do not exist. These results show that these two variables are reliable and separate and
can be used in regression analyses with minimal risk of multicollinearity issues.
4.4 Test of Heteroscedasticity
Table 4.
Test of Heteroscedasticity Results
Test Heteroskedasticity: Godfrey-Breusch
Statistic-f
0.341112
Prob. F (2,5)
0.7144
Squared-R Obs*
1.345552 Chi-Square Prob. (1)
0.5371
Described Scale SS
0.254441 Chi-Square Prob. (2)
0.7411
Source:
Statistics Analyzed
–
2022
There was a significant increase in probability. This shows a clear correlation between
the two variables. Using Breuch-Pagan-Godfrey's Chi-Square, it can be concluded that the Chi-
Square is significantly higher than alpha (0.5371 > 0.05) because it is more important than
alpha. Therefore, the Chi-Square test shows a statistically significant correlation between the
two variables. Hence, it is possible to claim that the sample has no heteroscedasticity issues.
4.5 Test of Autocorrelation Test
Table 5.
Test of Autocorrelation Result
LM Test: Godfrey-Breusch Serial Correlation
Statistic-F
1.442455
F-Prob. (2,5)
0.3094
Square-R Obs*
2.142225
Chi-Square Prob. (2) 0.1311
Source:
Statistics Analyzed
–
2022
The Chi-Skywire-Godfre LM test results is 0.1311 obtained by the Chikwire Bruce-Godfrey
LM test, which indicates that the value is higher than the value /alpha (0.1311> 0.05). Thus, the
Chi-Square Brash-Godre LM test results can be considered statistically important. This means
that there is no autocorrelation problem, which proves that the classical concept is valid, and
autocorrelation validity is detected. Therefore, it can be concluded that the classical concept is
valid, and the autocorrelation problem is absent from sample data.
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4.6 Test of Multiple Linear Regression
Table 6.
Test of Multiple Linear Regression Result
DV-Closing Value
Least Square Technique
Variables
Coefficient
Error-St.
Statistic-t
Prob*
Constant
-22455.22
11246.11
-2.304555
0.0441
ROE
253.0534
212.0452
1.222155
0.0712
ROA
-124.2441
125.0141
1.255441
0.0301
Square-R
0.824441
DV-Mean
1821.221
Square-R Adj.
0.742451
DV-SD
301.2255
Regression of SE
203.1144
Measure Akaike
12.25441
Raised in Square
24555.02
Measure Schwarz
14.22510
Chance Log
-51.25551
Measure Hannan-Q
12.28441
Statistic-F
11.21112
Measure Durbin Stat
2.125512
Statistic-F Prob.
0.000644
Source:
Statistics Analyzed
–
2022
Many linear regression results indicate a connection between the dependent variables
(DVs) - the closing value of a stock - and the free variable, return to equity (ROE) and return
to property (ROA). The regression equation developed by the results is:
Y =
-22455.22 + 253.0534 ROE 124.2441 ROA + e
Where: Y closing represents stock value, RO has returns on equity, ROA is returns on assets
and E error term.
The intercept of the equation, -22455.22, suggests that if both ROE and ROA are zero, the
stock value would be extremely low, potentially indicating that the company is facing
difficulties or a major loss scenario, thus unsustainable. This value may not be realistic in a
practical scenario but serves as a baseline for the model.
The coefficient of ROE (253.0534) implies that for every 1% increase in ROE, the stock
value would rise by approximately 253.05. This reflects a positive relationship between stock
value and ROE, suggesting that higher profitability (measured by ROE) tends to enhance
investor confidence and, consequently, increases the stock's value. ROE being significant at the
0.0712 level is on the margin, indicating that while the relationship holds potential, further
refinement in the model may improve its predictive strength.
Conversely, the coefficient of ROA (-124.2441) indicates a negative relationship with
stock value, where a 1% increase in ROA would lead to a decrease in the share price by 124.24.
The negative coefficient suggests that higher asset utilization, as reflected by ROA, might not
necessarily be viewed favorably by investors in this particular case. This could be due to
several sector-specific factors, such as the possibility that companies with higher ROA may be
in industries that involve high levels of capital expenditure or lower profit margins, which can
reduce profitability. Additionally, anomalies in the data, such as reporting inconsistencies or
outliers, could be influencing this result.
The model's fit is supported by the high R-differed value of 0.824441, which indicates
that about 82% of variability in stock values is explained by Roe and ROA. The adjusted R-
scarred value of 0.742451 supports further, keeping in mind the number of prophets in the
model. The F-Statistic of 11.21112 and the respective P-value of 0.000644 indicates that the
model is statistically important, which means that prophets Roe and ROA together explain a
significant part of the variance in stock values.
In conclusion, while the model suggests that an increase in ROE can lead to higher stock
values, the negative impact of ROA should be scrutinized further. This could be due to the
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nature of the industry under study, or it could reflect a data anomaly that warrants further
investigation and refinement in the model. The findings highlight the importance of a careful,
data-driven approach to stock investment, focusing on both profitability and asset
management factors.
4.Test of Partial (t-Test)
The following are the results of the EViews 10 program's partial hypothesis testing:
Table 7.
Test of Partial Financial Ratio Result - ROA
Variables
Coefficient
Error-Std.
Statistic-t
Prob*
Constant
-22455.22
11246.11
-2.304555
0.0441
ROA
253.0534
212.0452
1.222155
0.0712
ROE
-124.2441
125.0141
1.255441
0.0301
Source:
Statistics Analyzed
–
2022
Since the probability value for returns on assets (ROA) is 0.0712> 0.05 and the result of
partial test in Table 8 above is clear that H0 has been accepted and H1 has been rejected, which
indicates that the result is not quite absent. Therefore, ROA is not importantly related to
profitability. As a result, if t_statistic ROA = 1.222155> t_table Roe = 1.22155, H0 cannot be
validated, while H1 can be accepted. This indicates that it has a significant impact on the ROA.
Accordingly, one can infer that Pakistan Shari'ah Bank organization stock values could be
affected by financial ratios of return on assets (ROA), but not in a major way. Overall, ROA is
not a significant variable in analyzing Pakistan Shari'ah Bank stock values performance. Thus,
when the ROA ratio increases, the stock values will also increase as a result. Alternatively, if the
ROA decreases, the stock value will decline, and vice versa. The ROA performance statistic,
however, has a minimal impact on the organization's value. All these factors taken into
consideration; it can be said that the financial ratios of return on assets are significant to
consider when assessing the value of Pakistan Shari'ah Bank stock.
Table 8.
Test of Partial Financial Ratio Result - ROE
Variables
Coefficient
Error-Std.
Statistic-t
Prob*
Constant
-22455.22
11246.11
-2.304555
0.0441
ROA
253.0534
212.0452
1.222155
0.0712
ROE
-124.2441
125.0141
1.255441
0.0301
Source:
Statistics Analyzed
–
2022
According to the partial results of the test in Table 10 above, the ROE financial ratio has a
probability value of 0.0301 < 0.05, which suggests it is significant since H0 is rejected, and H is
accepted. In other words, if H0 is rejected and H1 is allowed because t_statistic ROE = 1.255441
> t_table = 1.255441, it has a negative impact. In Pakistani Shari'ah Banks organizations, there
has been a considerable and partly negative impact on share value in recent years, as the
financial ratio of return on equity (ROE) can be inferred to have a considerable and partially
negative impact. Therefore, Pakistani Shari'ah Bank organizations have not performed well in
recent years. In addition, if the return on equity goes up, the stock price will decrease. A
declining ROE on the other hand can lead to an increase in the stock price if the ROE declines.
There is a significant impact that even a small decline in ROE can have on stock value increase.
As a result, ROE changes affect the stock price in a significant way. Therefore, investors should
pay close attention to ROE when investing in stock investments.
Based on the probability values of 0.0712 > 0.05 and t_statistic ROA = 1.222155 > t_table
ROE = 1.222155 in Table 8, the hypothesis testing results indicate that the financial ratio ROE
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has some impact on stock value, but it is not statistically significant. Accordingly, the study's
conclusions are consistent with the earlier-mentioned theory that the higher the return on
equity (ROE), the more evident the benefit produced by the organization, and, therefore, the
greater the ability of the organization's cash flow to generate benefits for investors. Thus, this
evidence supports the idea that organizations with a high ROE are more likely to benefit their
investors. Furthermore, a high Return on Equity ratio will pique the interest of many investors
in investing in the organization. This in turn increases up the organization's share value. The
study found that in this study, the ROE financial ratio did not have a significant impact on stock
costs in this study. As a result of a decrease to a close range in 2022 in Roe since 2016,
investors have been unable to contribute money to Pakistan Sharia Bank organization. This
can be caused by Roe decrease. However, the possibility of increasing its ROE price from
11.53% in December 2021 in Pakistan Sharia Bank organization has increased to 15.63% in
2022. This is the first time in its history. Thus, with an increase in Roe, the Pakistan Sharia
Bank organization may be in better position to attract investors in the future. As a result,
Noviyanti et al. (2021), which also shows that ROA results in relation to stock values are not
important and where the importance value of 0.553> 0.05 is achieved, confirms the findings
of this study. They argue that this occurs because ROA only tracks return on assets for
shareholders, rather than returns on assets for the business. Therefore, investors should
consider other company metrics when making investment decisions. However, because the
ROA does not outline the organization's potential, the market cannot determine if the ROA is
worth much or little. This is when compared to financial supporters' predictions. Thus, it is
critical to consider other metrics, such as return on capital, when assessing organization
performance.
According to the results of analytical tests, which are shown in Table 9, the possibility of
a hypothesis test suggests that the ROE financial ratio significantly affects stock values:
0.0301> 0.05 t_statistic Roe = 1.255441> T_TABLE = 1.255441, respectively. This study
supports the hypothesis that a bank's equity effectiveness has a negative relationship with its
ROE value or ratio. Furthermore, the advantages will be significant, so investors will receive a
large return on their investment once functional expenditures are covered. Therefore, a
negative relationship between stock costs and ROE percentage is possible. Stock values
increase and decrease when ROE ratios are inadequate or low. Putri's (2016) study shows
ROE has a considerable detrimental effect on stock values, confirm this study. The authors said
that if the ROE ratio increases, the capital market will appreciate it as it will reduce the share
cost of the bank. Additionally, if the ROE ratio decreases, the stock market price will increase.
This will enable investors to predict bank share prices on the stock exchange using the ROE
ratio as an indicator. Pakistan Meezan Bank (SMBL) was formed by combining Shari'ah Islami
Bank, FBL Shari'ah, and HBL Islamic. With this merger, Pakistan Meezan Bank (SMBL) has
become one of the leading Islamic banking institutions in the country. As a result of the
combination of these three Islamic banks, it is believed that the national economy will be
stimulated, and social welfare will improve. As a result of its existence, the Pakistan Shari'ah
Bank also reflects the modern, all-encompassing, and rahmatan lil 'alamiin nature of Islamic
banking in Pakistan. Growing a corporation requires returns on equity. Thus, the formation of
Pakistan Meezan Bank (SMBL) is a significant milestone in Islamic banking growth in Pakistan.
The organization may obtain this capital by increasing its exposure to the outside world.
Assuming ROE risks. Capital market activities should be managed optimally to ensure the
highest ROE for the organization. Due to the ease of obtaining information about businesses
listed on the stock market, investors tend to choose ROE - in this case, the stock exchange - as
the setting for efficient money management. The investors are consumers of financial reports,
so it is necessary to ensure that the facts and information regarding an organization are
accurate, true, and consistent to reduce risk in corporate trading of shares. Without proper
accuracy and consistency, investors may be left to make decisions with inadequate
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information, leading to potentially risky investments. Return on property (ROA) and Return
on Equity (Roe) can be calculated during an analysis of an organization, in addition to viewing
its financial statements directly. When investing in an organization, investors should carefully
analyze financial reports and assess reliability.
External factors, such as the COVID-19 pandemic, may have influenced the financial
performance of Pakistan Shari'ah Bank and MBL during the 2016
–
2022 period. The pandemic
led to economic disruptions, affecting businesses, consumer behavior, and financial markets
worldwide. It resulted in lower consumer spending, loan defaults, and increased financial
instability, which could have impacted profitability, asset utilization, and investor confidence.
Although this analysis does not directly address COVID-19, the potential influence of such
external shocks on financial metrics like ROA and ROE cannot be overlooked, as they may have
temporarily altered the banks' financial performance and stock values.
Conclusion and suggestions.
Based on the results of data analysis on the impact of financial ratio on stock values in
Pakistan Sharia Bank Organization, it may be possible to close the case in the following way.
Therefore, it is important to analyze the financial ratio in detail to draw meaningful
conclusions. In the end, it shows that Pakistan Shariat Bank Organization on the Stock
Exchange affects the share values of the Financial Ratio (ROA and ROE) organization. This
suggests that the financial ratio organizations play an important role in assessing shared
values. In this case, the H0 is rejected and H1 is accepted as it has a prob (F-measurement) =
0.0712> 0.05 or F-Statistic = 1.222155> F Table = 2,97, M value, meaning that H0 has been
rejected and H1 is accepted. Therefore, it can be concluded that the financial ratio of Pakistan
Sharia Bank has a significant impact on stock values.
Given that a probability value of 0.0712> 0.05 is obtained, the financial ratio (ROA) affects
stock values in the Pakistan Sharia Bank organization in the Pakistan Stock Exchange, partially,
but not important. At that time, H0 is rejected and H1 is accepted. Thus, it can be concluded that
the financial ratio affects stock values, although not important. H0 is also rejected and H1 is
accepted when Roe = 2,133065> Table 1.222155. Thus, it can be concluded that financial ratio
has a significant impact on Pakistan Sharia Bank stock values. The ROE ratio is one of the most
important and adversely affected financial ratios, which negatively affects the value of an
organization. Sharia Bank MBL is a Sharia Bank in Pakistan. Thus, the ROE ratio is a major
indicator of Sharia Bank MBL's financial health, which needs to be monitored regularly. On the
Pakistan Stock Exchange, H0 is rejected and H1 is accepted as 0.0301 <0.05 and Statistics Roe
= 1.255441> Table = 1.25441 is obtained. Overall, the results indicate a positive relationship
between the value of Roe and Shariah Bank MBL on the Pakistan Stock Exchange. Quantitative
data was analyzed using EVISH 10 for quantitative analysis. F test results suggest that
independent variables, namely ROA and ROE financial ratio, have a significant impact on stock
values at Pakistan Shariat Bank at Pakistan Stock Exchange, with prob (F-Statistic) = 0.0712
<0.05 and F-Statistic = 1.222155> F-Table = 2,97. Finally, our results suggest that the return of
the bank on the property and the return on equity financial ratio had a significant impact on its
stock values on the Pakistan stock exchange.
As a result of T-Test, where the possibility of 0.0301> 0.05 is obtained, the financial ratio
(ROE) has some effect on the stock price of Pakistan Sharia Bank, but not significantly. At that
point, H0 is accepted and H1 is rejected, resulting in Roe = 1.255441> table = 1.255441.
Additionally, T-Test results where 0.0301 <0.05 or T-Statistic ROE = 21.255441> Table =
1.255441 should show a probability value of the financial ratio (ROE) Pakistan Stock Exchange
affects the stock value in Pakistan Shariah Bank. Therefore, it can be concluded that financial
ratio has a significant impact on stock price in Pakistan Sharia Bank. Keeping all these results
in mind, it can be concluded that the financial ratio plays a statistically important role in stock
price in Pakistan Sharia Bank.
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