AN EMPIRICAL STUDY OF THE RELATIONSHIP BETWEEN PROFITABILITY RATIOS AND MARKET SHARE PRICES OF PUBLICLY TRADED BANKING FINANCIAL INSTITUTIONS IN GHANA

Abstract

The purpose of the paper was to investigate empirically whether ROA, ROE, and ROI together explain variations in the market prices per share of publicly traded banking financial institutions in Ghana for the period 2009 – 2013. We found a significant linear relationship between the ROA, ROE, and ROI together the market prices per share, with the ROE contributing more than the ROA. These findings are consistent with both empirical and theoretical literature which posit a positive linear relationship. The findings have important implications for investors, bank senior management as well as the banks regulator to improve the quality of reporting by banks quoted on the exchange.