Market Risk and Financial Performance of Non-financial Companies Listed on the Moroccan Stock Exchange

Abstract

This study examines the effect of market risk on the financial performance of 31 non-financial companies listed on the Casablanca Stock Exchange (CSE) over the period 2000-2016. We utilize three alternative variables to assess financial performance, namely return on assets, return on equity and profit margin. Next, we use the degree of financial leverage, the book-to-market ratio, and the gearing ratio as market risk variables. Besides, we employ the pooled OLS model, the fixed effects model, the random-effects model, the difference GMM and the system GMM models. The results show that market risk indicators have a negative and significant influence on the companies' financial performance. The elasticities are greater following the book-to-market ratio compared to the degree of financial leverage and the gearing ratio, respectively. In most cases, the firm size, the tangibility ratio, and the cash holdings ratio have a positive effect on financial performance, whereas the firms' age, the debt-to-income ratio, stock turnover, and leverage hurt the performance of these non-financial companies. Therefore, decision-makers and managers should mitigate market risk through appropriate strategies of risk management, such as derivatives and insurance techniques.

Market Risk and Stock Return of Listed Financial Service Firms in Nigeria

“…The result of hypothesis test revealed an insignificant negative effect of book-to-market ratio (BMR) on stock return of financial service firms with a coefficient of -0.0319 and p-value of 0.131 at 5% significance level. The result obtained from the regression estimators supported the study of Agbam et al (2018), though the study of Gautam (2017) and Kassi et al (2019) revealed a significant negative effect. However, the result did not support the study of Morelli (2017) and Akwe et al (2018) which found a positive effect of book-to-market ratio on stock return.…”

“…Empirical studies have provided measures or indicators of market risk to include firm specific variables of book-to-market ratio which is defined as net total assets or shareholders fund to market capitalization (Kassi, Rathnayake, Louembe & Ding, 2019;Chen et al,2010;Agbam, Anyamaobi & Okon, 2018;Gautam, 2017;Morelli, 2007;Akwe, Garba & Dang 2018); net interest margin defined as net interest income to total assets or average earning asset (Chaudhry et al, 2008;Badawi, 2017;Muriithi, Muturi & Waweru, 2016;Murazi & Usman, 2016). Other empirical measures of market risk include interest rate risk defined in terms of treasury bill or commercial paper rates (Belke & Poliet, 2004;Mwaurah, 2019), monetary policy rate (Okpara, 2010); foreign exchange risk defined as percentage change in a country's currency rate to a base rate (Mwaurah, 2019); inflation rate defined change in general price level of goods and services on a year-to-year basis (Alagided & Panagiotidis, 2006;Daferighe & Aje, 2009); monetary policy rate defined as the interest rate issued by a central or reserve bank of a country (Abbass, Song, Shah & Aziz, 2019).…”

“…The study of Kassi, Rathnayake, Louembe and Ding (2019) examined the effect of market risk on the financial performance of 31 non-financial companies listed on the Casablanca Stock Exchange (CSE) from 2000 to 2016. The study used financial leverage, book-to-market ratio, and gearing ratio as indicators of market risk while return on assets, return on equity and profit margin were representatives of financial performance.…”

“…Empirical studies have been conducted on market risk and stock return as few studies have considered firm specific variables such as stock beta, net interest margin, book-to-market ratio to proxy market risk (Handayani, Farlian & Ardian,2019;Osamwonyi & Asein,2012;Morelli, 2007;Badawi, 2017;Muriithi, Muturi & Waweru, 2016;Nurazi & Usman, 2016;Fama & French, 1992;Kassi, Rathnayake, Louembe & Ding, 2019;Agbam, Anyamaobi & Udo, 2018;Gautam, 2017;Akwe, Garba & Dang, 2018). Other studies considered macro-economic variables like foreign exchange rate, inflation, equity pricing.…”

Family Firm Heterogeneity and Tax Aggressiveness: A Quasi-Experimental Analysis of the Impact of Different Family Generations

“…The concept of "capital structure" or "financial structure" relates to financing issues. In line with the related literature (Friend & Lang, 1988;Kassi et al, 2019;Lin et al, 2008), we exclude trade credit for several reasons. First, we focus on financial leverage given that it produces debt interest and its tax deductibility is affected by the thin capitalization rule studied in this paper (Ampenberguer et al, 2013;Clemente & Sogorb, 2016).…”