The Relationship Between CR, DER, and ROA with Stock Returns: VECM Approach

Abstract

This study aims to determine the relationship between financial ratios and stock returns of food and beverage sector manufacturing companies listed on the Indonesia Stock Exchange (IDX) in the long and short term. The financial ratios studied are: Current Ratio (CR), Debt to Equity Ratio (DER) and Return On Asset (ROA). The population in this study is food and beverage sector manufacturing companies listed on the Indonesia Stock Exchange (IDX) during the 2017-2022 period. The research sample was 23 food and beverage companies obtained by purposive sampling technique. The data collection technique used is secondary analysis. The data analysis method used in this study is the Vector Error Correction Model (VECM). Based on the results of calculations in the short term, it is known that the t-statistical values in the variables CR are 0.29261 < 1.977826, DER ( -0.09993 > -1.977826) and ROA ( -2.46756 < -1.977826). While in the long term known t-statistical values in variables CR and ROA (0.28163, 0.95621 < 1.977826) and DER (2.04780 > 1.977826). For the granger causality test, the results of the prob value were found. In the relationship between CR and DER (0.0458 < 0.05) and the relationship between CR and ROA with prob values. 0.0170 < 0.05. The results showed that in the short term, there was no significant influence between CR and DER variables on stock returns, while ROA had a significant effect on stock returns. In the long run, the variables CR and ROA do not have a significant influence on stock returns, while the DER variables have a significant influence on stock returns. The results of the granger causality test show a one-way causality relationship in the variables CR with ROA, and CR with DER. However, no significant causality relationship was found between the other variables.