The Effect of Profitability Ratios on Market Capitalization in Jordanian Insurance Companies Listed in Amman Stock Exchange

Abstract

This study aims to examine the effect of profitability ration on market capitalization in the Jordanian insurance companies listed in Amman stock exchange (ASE) by examining time series data collected over a period of four years from (2010 – 2013) which included 25 companies and utilizing  content analysis to extract the data from the company's annual reports. The finding indicated that there's an effect of Return on Investment (ROI) upon market capitalization for the companies operating in the insurance sector listed in the ASE. In terms of the effect of Return on Equity (ROE) on market capitalization, the study revealed that ROE does not affect the market capitalization for the companies operating in the insurance sector listed in ASE.  In respect of the effect of Return on Asset (ROA) on market capitalization, the result indicated that there is an effect of ROA on Market Capitalization for the companies operating in the insurance sector listed in ASE. Additionally,  by examining the effect of the independent variables (ROA, ROI, and ROE) combined in the market capitalization variable, the study revealed that all of ROA, ROI, ROE combined effects on the market capitalization and thus the main hypothesis was accepted and requires that there is an effect of profitability measured by (ROA, ROI, ROE) on market capitalization for the companies operating in the insurance listed in (ASE). Finally, the study contributes by utilizing a content analysis for a time series data in order to track the relation between financial performance indicators and market capitalization in an emerging economy such as Jordan, specifically Jordanian insurance sector.

Keywords: Profitability Ratios, Market Capitalization, Insurance Sector, Jordan