An Empirical Study of Profitability Indicators, Asset Investment, and Their Impact on Stock Returns for a Group of Banks Listed on the Iraq Stock Exchange for the Period (2004-2022)

Abstract

The research aims to determine the impact of the asset investment indicator (natural logarithm of assets) and profitability indicators (return on assets, return on equity, return on working capital, operating profit margin, and market value/book value) on stock returns for a group of banks listed on the Iraq Stock Exchange. The research assumed no significant (positive) relationship between asset investment and stock return at a significant level (α = 0.05), as well as no significant (positive) relationship between profitability indicators and stock return at a significant level (α = 0.05) for the sample banks. The research reached a number of conclusions, including that profitability and asset investment play a special role in asset pricing across sectors not only with variables but also those related to high return premiums, and they also help in explaining a wide range of other outlier cases that some models have failed to explain due to this unique role played through profitability and investment, indicating their interpretive strength, which is of utmost importance. The research has presented a set of recommendations including analyzing the financial market accurately and in-depth before making any investment decision to identify the opportunities and risks associated with each type of asset, and banks should consult experts to make appropriate investment decisions that align with the objectives set by bank managements.