THE RELATIONSHIP BETWEEN FINANCIAL EFFICIENCY RATIOS AND STOCK PRICES: AN EMPIRICAL INVESTIGATION ON INSURANCE COMPANIES LISTED IN BORSA ISTANBUL
It is a common perception that efficiency is an important issue regardless of industry. A sound and
highly functional insurance industry serves as a crucial financing channel in an economy. At this aspect, this
study aims to examine the relationship between the financial efficiency ratios and stock prices of insurance
firms, whose stocks are publicly traded in Borsa Istanbul. The study is performed on quarterly data set. The
sample period covers 2005Q1 and 2012Q4. Taking three sets of efficiency ratios, which are namely cost,
revenue and profit efficiency, as proxy, we run a regression analysis against stock prices. This study is the
first, best to our knowledge, in examining the interaction between Turkish insurance firms’ efficiency ratios
and their stock prices. Our findings suggest that all of employed models confirm statistically significant
relationships between the ratios and stock prices. Among the three ratio groups, profitability ratios emerge
as the best fit models. The results carry important implications for insurance firms as well as investors.
Keywords: Insurance, Efficiency, Ratios
Jel Codes: C10, C22, G22
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