Market Perception versus Financial Performance: The Mediating Role of Price to Earnings Ratio in Explaining Stock Returns in the Non-Cyclical Consumer Sector
Abstract
This study investigates the relationship between financial performance and stock returns by incorporating market perception through the mediating role of the price-earnings ratio (PER). Using panel data from non-cyclical consumer sector companies listed on the Indonesia Stock Exchange during the 2020–2024 period, this research examines whether traditional financial ratios namely Current Ratio (CR), Debt-to-Equity Ratio (DER), Return on Assets (ROA), and Firm Size remain relevant in explaining stock returns. The study employs panel data regression and mediation analysis to explore both direct and indirect effects. The findings reveal that Current Ratio, Return on Assets, and Firm Size each have significant direct effects on both PER and stock returns, while Debt-to-Equity Ratio does not. PER also plays a partial mediating role, transmitting the effect of Current Ratio, Return on Assets, and Firm Size on stock returns. These results indicate that market perception adds an explanatory layer on top of company fundamentals rather than replacing it, suggesting that both channels jointly shape investor behavior in this sector. This study contributes to the literature by providing empirical evidence from an emerging market context, emphasizing that stock returns are not solely driven by financial performance but are also shaped by behavioral and market-based factors. The findings imply that investors should integrate both fundamental analysis and market perception when making investment decisions.
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