The Effect of the Financial Ratios on Foreign Investors? Choices of Stock: An Empirical Application on ISE

Abstract

In the literature, many studies which aim to determine factors affecting investment decisions of foreign investors were done, because foreign investments have importance with regard to national economies, capital markets and firms. In the related studies, lots of factors were investigated for explaining the causes of the foreign capital mobility, but the effect of the financial ratios on the foreign capital mobility was not investigated comprehensively. The main purpose of this study is to investigate the effect of the financial ratios of firms traded in ISE on foreign investors? choices of stock. For this purpose, in this study, data of three-month financial statements of 193 firms traded on ISE between 2004/12-2014/09 and net quantities of stocks bought and sold by foreign investors were used as data. At the end of this study which used panel data regression methodology, it was revealed that foreign investors prefer the stocks of firms which increase net profit margin, current ratio and debt to equity ratio of theirs and decrease inventory turnover and short term financial debt to short term debt ratio of theirs.