Business Economics – Regression Analysis

Effect of Ratio Profitability: Return on Asset (ROA) and Return of Equity (ROE) to Stock Price of PT Bank Central Asia (BCA) Tbk. Ratio profitability, Return on Asset (ROA) and Return of Equity (ROE), of a firm is used as one of parameters for investor to decide whether they want to invest or not. The following table consists of ROA and ROE as well as the stock price of PT Bank Central Asia (BCA) Tbk. , as one of the largest bank in Indonesia, from year of 2002 up to 2011. Table 1. ROA, ROE and stock price of PT Bank Central Asia Tbk. tahun 2002-2011 Year| Stock Price(Y)| ROA(X2)| ROE(X2)| 2002| 2500| 2. 17| 22. 08| 003| 3325| 2. 36| 24. 87| 2004| 2975| 3. 04| 32. 52| 2005| 3400| 3. 41| 32. 33| 2006| 5200| 3. 43| 33. 58| 2007| 7300| 1. 68| 16. 47| 2008| 5778| 3. 14| 33. 16| 2009| 5645| 3. 17| 32. 11| 2010| 4284| 3. 28| 31. 23| 2011| 3674| 2. 65| 24. 16| Using regression analysis we want to determine the relationship between ROA, ROE and stock price of PT BCA Tbk. In this case, ROA and ROE are the independent or explanatory variable (X), while stock price is the dependent variable that we want to explain (Y). Regression Analysis SUMMARY OUTPUT| | | Regression Statistics| Multiple R| 0. 13028475| R Square| 0. 016974116| Adjusted R Square| -0. 63890422| Standard Error| 1710. 529517| Observations| 10| ANOVA| | | | | | | df| SS| MS| F| Significance F| Regression| 2| 353656. 3| 176828. 15| 0. 060435241| 0. 941840446| Residual| 7| 20481378. 6| 2925911. 229| | | Total| 9| 20835034. 9| | | | | Coefficients| Standard Error| t Stat| P-value| Lower 95%| Upper 95%| Lower 95. 0%| Upper 95. 0%| Intercept| 5361. 609293| 2796. 526605| 1. 917238793| 0. 096721961| -1251. 125335| 11974. 34392| -1251. 125335| 11974. 34392| X Variable 1| -142. 3275587| 3749. 125063| -0. 037962873| 0. 970777259| -9007. 599603| 8722. 944486| -9007. 599603| 8722. 944486| X Variable 2| -19. 7879081| 375. 1702777| -0. 051919867| 0. 960043105| -906. 6155278| 867. 6579462| -906. 6155278| 867. 6579462| From the summary output we can estimate the linear relationship between the stock price (Y) and ROA (X1), ROE (X2) in the form of equation below: Y= 5361. 6092 – 142. 3275 X1 – 19. 4788 X2 The result indicates that for each 1% decrease in ROA and ROE; the stock price decrease by IDR142. 3275 (the estimated coefficient of X1) and IDR19. 4788 (the estimated coefficient of X2) also, respectively. To understand how significant the independent variable can explain the dependent variable, we can observe from t-stat data.
The critical value of t at the 0. 05 level of significance is 2. 365 (from table of the t distribution). The analysis result show that t-stat value below the critical value of t = 2. 365. It means that at the 5% level of significance, we accept there is no significant relationship between ROA, ROE and stock price. We need more variable better than just ROA and ROE to picture the movement of price stock. The two variables, ROA and ROE, are not enough to explain the stock price of PT BCA Tbk. Now, we want to see how good is the model or how much the explanatory power of the model by looking at R2 data.
R2 measures how much of the variation in the firm’s stock price is explained by the variation in its ROA and ROE. The analysis result shows that the value of R2 is 0. 016974116, extreme to 1. It means that none of the variation in stock price was explained by the variation in ROA and ROE. In conclusion, looking at the value of t-stat and R2, variable ROA and ROE is not enough to explain the movement of stock price PT BCA Tbk. We need to add more variables to get more description how the stock price change and how significant and sensitive the variables impact to stock price.