The Relevance of Financial Performance in Determining Stock Prices of Insurance Companies

Abstract

Purpose: Despite the sector's significant growth and economic importance, there is ongoing concern over what drives stock prices in the insurance industry. This study aims to investigate the factors influencing stock prices in the Nepalese insurance industry, specifically focusing on the relationship between financial performance indicators and stock pricing.
Design/methodology/approach. Utilizing a robust research design, the research employs a panel data regression analysis spanning eight years (FY 2014/15 to 2021/22) on ten insurance companies, disaggregated into life and non-life subsets. The financial variables under investigation include Return on Assets (ROA), Earnings per Share (EPS), Return on Equity (ROE), Net Profit Margin (NPM), and Book Value per Share (BVPS).
Purpose. Despite their growth and economic significance, insurance stock prices raise concerns. This study investigates the factors influencing stock prices in the Nepalese insurance industry, specifically focusing on the relationship between financial performance indicators and stock pricing.
Design/methodology/approach. This research employs panel data regression analysis spanning eight years (FY 2014/15 to 2021/22) on ten insurance companies, disaggregated into life and non-life subsets. It investigates financial variables such as Return on Assets (ROA), Earnings per Share (EPS), Return on Equity (ROE), Net Profit Margin (NPM), and Book Value per Share (BVPS).
Findings. The research reveals a consistently positive and significant influence of EPS (p<0.05) on stock prices across all models. The Random Effects Model confirms that only EPS and ROE significantly affect stock prices in life and non-life insurance companies, with ROE exhibiting a notable negative impact. ROA, NPM, and BVPS show no significance, indicating variability in their impact on stock pricing.
Research implications. This study provides practitioners with insights into financial factors driving stock prices, aiding strategic decision-making. The findings contribute to a deeper understanding of the dynamics of the Nepalese insurance market and offer guidance for future research and policy interventions.
Originality/value. This study uniquely analyzes the insurance sector by incorporating life and non-life subsets, providing a more detailed analysis. Employing robust analytical techniques, it comprehensively explores the relationship between financial performance and stock pricing, contributing empirical evidence and insights to industry stakeholders and academia.