FACTORS THAT AFFECT STOCK PRICING IN INDONESIA STOCK
EXCHANGE
Gusni
Business and Management Faculty, Widyatama University
gusni.tanjung@widyatama.ac.id
Abstract - This study identifies factors of affecting stock
pricing in the financial industry, and define which of the
most important factors having powerful effect on the firm
stock price. The study also interested to show factors that
investors rely on to take their investment decisions. The data
used in this study were collected from the period of 2009 to
2013 of financial industry listed in Indonesia Stock Exchange
which samples were taken from 18 companies. Panel data
regression methods have been conducted to explain factors
affecting stock pricing on the firm stock price. Regression
result indicates that, profitability, leverage, and dividend
policy have negative impact on the firm stock price.
Moreover, systematic risk and institutional ownership
significantly affect on the firm stock price.
Keywords - Stock Price, Factors Affecting Stock Pricing
I. INTRODUCTION
The capital market is a vessel for the investors to
invest. Generally, Investors make transactions in the
capital market with a motive to sell back the stock held
with the higher price, in order to obtain capital gain. Stock
price has always fluctuated over time that is affected by
the forces of demand and supply in the capital market. If
the demand for the stock is higher, then the stock price
will move up, otherwise if the supply is higher and
demand is low, then the stock price will move down [1].
Stock price changes occurs every day affected by
various factors, including company performance,
ownership structure, dividend policy, systematic risk,
company value and etc., which is useful for investors to
help in analyzing whether the company's condition are
good or not for investment activities.
Knowledge about the company performance and
condition can be used as information and reference for the
investors in predict stock price movements. Theory of
efficient capital markets is famous with Efficient Market
hypothesis / EMH showed that investor behavior related
to the relevant information which received by the market.
This theory define the efficient capital market as a market
that share price already reflects all relevant information,
so the stock price is right and fair [2].
The company's performance is the information for
investors that can gather from the company financial
statements publication through company financial ratios.
According to [3] financial ratios at least able to provide
answers for four questions; how the company liquidity,
whether the effective of management generates operating
earnings on the assets, how company will be funded, and
whether common stock holders get sufficient rate of
return.
The systematic risk attached to the stocks as well as
institutional ownership in the company also should be a
part of investors concern. Systematic risk has a
relationship with stock returns through stock price
movement [2].
Meanwhile institutional ownership also has
contributed, according to some experts, institutional
ownership will encourage more optimal monitoring of the
management performance [4], a good management
performance believed can be increase the company's
stock price.
Generally, if the company performance and condition
are in good standing and supported by favorable
economic conditions, investors will be interested in
investing in the capital market, so that demand for stocks
will be increase which resulted rising in the company
stock price [5]. Besides that, the capital market also
provides an efficient mechanism for investors to liquidate
or to invest in a stock [6].
A number of empirical studies have been trying to
analyze the impact of profitability, systematic risk,
leverage, dividend policy and institutional ownership on
the stock price, as conducted by [7] which found that
there is relationship between investment risk with stock
price and there is no relationship between profitability
(ROE) with stock price in the agriculture, construction
and finance sectors. Research conducted by [8] found
contrary result that profitability has negative impact and
not significantly influence stock price in the
manufacturing industry. Another research conducted by
[9] found that there are positive and significant
relationship between leverage (DER) and profitability
(gross profit margin) with the stock price. Research
conducted by [10] also found that profitability
demonstrated by return on equity and dividend policy has
a positive and significant relationship with the stock price.
Contrary with research conducted by [11], found that
dividend payout has significant negative correlation with
the stock price. Furthermore research conducted by [12]
found that there are positive and significant relationship
between profitability (ROI), debt to equity ratio (DER)
and beta (systematic risk) with the stock price. This result
contrary with research conducted by [13] showed
different results, which leverage has negative and TABLE I
insignificant relationship with the stock price. RESEARCH VARIABLES AND HYPOTHESES

Next, research conducted by [14] found that Expected

institutional ownership has a positive and significant Variables Definition Symbol
Sign
relationship with the stock price, this study contrary with Independent variables
the studies conducted by [15], which found institutional Return on Earnings after
ROI H1 (+)
Investment tax/Total Assets
ownership has negative impact on the stock price. Covariance of share
Furthermore research conducted by [16] that found, Systematic return and market
Beta H2 (+)
dividend policy does not affect the stock price, this Risk return/variance of
research contrary with prior research that found dividend market return
Debt to Total debt/Total
policy has positive impact on the stock price. Asset Ratio Assets
DAR H3 (+)
Some of the research above provides evidence that Dividend Dividend per
stock price can be predicted by using profitability, the Payout share/earnings per DPR H4 (+)
systematic risk (beta), leverage, dividend policy and Ratio share
Institutional
institutional ownership. However the other factors are not Institutional
ownership/number IO H5 (+)
proven, so it is difficult to determine the specific factors Ownership
of share outstanding
can be used as indicators in predicting the company's Dependent variables
stock price. Closing share price
Stock
at 31st December for SP
Pricing
the years studied

C. The Empirical Model and Data Analysis Method

II. METHODOLOGY
The test toward the hypothesis in this research is
A. Data using panel data regression model as used by [18]. Data
analysis used is the combination between cross section
The data for the study was gathered from the official
and time series (pooling data). The regression equation
website of Indonesia stock Exchange (www.idx.co.id) and
model is presented below:
company annual report. The data was secondary data.
SP = a + β1ROI+ β2Beta+ β3DAR+ β4DPR+ β5IO+ e
Secondary data is data that is published or utilized by
Where a was constanta, β1, β2, β3, β4, β5 were
other organization, not by the user. Secondary data used
regression coefficients, and the variables already being
in this research in the form of documents on financial
defined in the table 1 above.
statements and other related information such as company
The researcher will use eviews version 9 for to run
annual report, and share statistic report. For additional
the statistic data and analyze the results. The primary step
information, the researcher also takes information which
in conducting panel data regression model, several classic
has already existed, like articles, journals, text books, and
assumption tests have to be conducted. The tests consist
etc. The data used in this research is the combination of
of normality, multicollinearity, autocorrelation, and
time series data and cross section data, which is known as
heteroscedasticity test. Normality test is used to test
pooling data.
whether the residual is distributed normally in a
This research used companies in the financial industry
regression model. Normality test used in this research is
listed at Indonesia stock exchange consist of 79
normality test using skewness and kurtosis ratio along
companies and the companies divide under the categories
with Jarque-Bera test. Multicollinearity test is used in
of bank, financial institution, securities company,
order to find the correlation among the independent
insurance, investment fund/mutual fund, and others. Panel
variables in a regression model. To detect if the regression
data for the study collected from the period of 2009 -2013
model is experiencing multicollinearity, it uses Pearson
which sample were taken from18 companies by using
correlation. Autocorrelation test is used to test if the linier
purposive sampling technique. Panel data give more
regression has a correlation between the Errors in the t
informative data, more variability, less co-linearity among
period with t-1 period. If the correlation occurs, then
the variables, more degrees of freedom and more
autocorrelation problem exist. One of the test that is
efficiency [17].
generally used in detecting autocorrelation is by using
Durbin-Watson statistic test which developed by J.
B. Formulation of Research Hypotheses
Durbin and G. Watson in 1951 [19].
Heteroscedasticity test is to examine whether the
Hypotheses is an interim for answer a formulated
regression model is having inequality of variance from
problems of the research and an answer based on relevant
residual of one observation to other observation [20].
theory, it is not basically empirical facts from data
According to [19], to detect the heteroskedasticity
gathering. Based on review of several prior studies has
problem, it can use formal and informal method. Formal
resulted in several testable hypotheses. Table 1 shown an
method can be done by statistical test including Park Test,
overview of the variables used, definition of variables
White Test, Glejser Test and Breusch Pagan Godfrey
employed and the hypothesized are formulated.
(BPG) test. In this research, the research will use the BPG TABLE III
PANEL DATA REGRESSION RESULTS
test in detecting the heteroskedasticity problem.
Next step was test of the accuracy of the regression Variables Coefficient Std. Error Prob.
function in predicting the value of the dependent variable ROI 0.105002 2.576760 0.9676
is determined by the goodness-of-fit [20]. In measuring Beta 0.136941 0.053085 0.0116
DAR -0.464852 0.640972 0.4703
the goodness-of-fit, a panel data regression model can be
DPR 0.041360 0.351940 0.9067
analyzed through F-test, t-test and adjusted R2. IO -1.573410 0.614093 0.0122
F test is known as Anova test is used to find the C 8.404826 0.791425 0.0000
impact of independent variables simultaneously toward R-squared 0.1818
dependent variable or to test if the model used is fix or F-statistic 3.735
Prob(F-statistic) 0.004
not. t test is supposed to analyze the effect of each Source: The processed using eviews 9
independent variable individually toward the dependent
variable or called as hypothesis test. R2 test which is The regression analysis resulted show that the
coefficient determination test to measure the ability of the coefficient of variation (β) which explains the direction of
model or the independent variables used to define changes variability is positive for ROI, Beta, and DPR while it is
on the dependent variable. negative for DAR and IO. For the F-test results show that
Fcalculated is 3.735 with αcalculated is 0.004, meanwhile Ftable
equal to 2.48 with α = 0.05. It shows that Fcalculated> Ftable,
and α calculated< 0.05. Meaning that independent variables
III. RESULTS used in this research is simultaneously able to define
dependent variable in a good way or the regression model
The result of normality test using Jarque-Bera test is fix.
show that Jarque-Bera probability value is 0.197 > α (α =
0.05), it can be said that the data are normally distributed. TABLE IV
Furthermore, multicollinearity test using correlation t TEST RESULT (HYPOTHESES TEST)
matrix for each independent variable resulted by the data
processing shows that there is no multicollinearity Variables t-calculated α-calculated t-table α-table
between independent variable, because the coefficient ROI 0.0408 0.9676 1,6632 0,05
correlation are below 0.8 as seen in the table 2 below: Beta* 2.5797 0.0116 1,6632 0,05
DAR -0.7252 0.4703 1,6632 0,05
TABLE II DPR 0.1175 0.9067 1,6632 0,05
COEFFICIENT CORRELATION MATRIX IO* -2.5622 0.0122 -1,6632 0,05
*significant at the 0.05 level
ROI Beta DAR DPR IO Source: The processed using eviews 9
ROI 1.000000 -0.137866 -0.629622 0.104684 -0.015688
Beta -0.137866 1.000000 0.041570 0.259503 0.027224
From the t-test result as seen in the table IV above,
DAR -0.629622 0.041570 1.000000 -0.040191 0.192494
beta and institutional ownership are independent variables
DPR 0.104684 0.259503 -0.040191 1.000000 0.145817 whose α value are lower than significant level of 0.05 and
IO -0.015688 0.027224 0.192494 0.145817 1.000000 t-calculated greater than t-table. It can be said that beta
Source: The processed using eviews 9 (systematic risk) and institutional ownership have a
positive impact and significant toward stock pricing.
For autocorrelation test result using Durbin-Watson Meanwhile, the other variables (return on investment,
test shows that the value calculated is 1.6055 and Durbin- debt to asset ratio, and dividend payout ratio) are having α
Watson table with α=5%, k=5, dan n=90 is dL=1,5420 and value higher than significant level of 0.05 and t-calculated
dU=1,7758, so if it is compared between Durbin-Watson lower than t-table. It means that return on investment,
calculated and Durbin-Watson table, it is not showing a debt to asset ratio, and dividend payout ratios have
certain result because the Durbin-Watson value calculated negative impact and does not significant toward stock
is between dL and dU. However, it can be concluded that pricing.
there is no autocorrelation because the Durbin-Watson The model developed for stock pricing is weak,
calculated is close to 2. The result of heteroskedasticity because coefficient of determination (R2) as shown in
using the Breusch Pagan Godfrey (BPG) test resulted in p table 3 above is 0.1818. It can be said that the variation in
value-obs*-square 0.1950 > 0,05, meaning that there is no the stock pricing in financial industry listed at Indonesia
heteroskedasticity among the residuals in the regression stock exchange can be explained by the variation in ROI,
model or the variance of the residuals keep staying the Beta, DAR, DPR and IO by 18.18%, taking into account
same across different observation or different values of the sample size and number of independent variables,
independent variables while the remaining of 81.82% is explained by the
The regression equation in this research is formed variation of other variables outside of the regression
with using random effect model which selected by Chow model.
test, Hausman test, and Langrangge Multiplier (LM) test.
The results of the regression are shown in table 3 below.
 IV. DISCUSSION the company’s management, then the company
performance would be better, and at the end could
Based on data processing result as shown in table 4 increase company stock price. This research result is
above, it can be seen that ROI has no impact significantly suitable with research conducted by [14] and contrary
toward stock pricing, so the formulated hypothesis is not with research conducted by [15].
suitable with the result of this research.
There is no impact of profitability ratio measured by
return on investment (ROI) to the stock price can caused
V. CONCLUSION
by the slow of investor in response new information
released by the company, so the stock price in the market
The aim of this study was to indentify factors
reflect the available information only in the certain times.
affecting stock pricing, and define which of the most
If there is no response from investors, stock price will not
important factors having powerful effect on the firm stock
be affected. The result of this research suitable with the
price. The data used for this research was secondary data
research conducted by [7], [8] who stated that there is no
in the form of documents on financial statements and
impact of profitability to the stock price, and contrary
other related information such as company annual report,
with the research conducted by [9], [12].
and share statistic report, and gather from the official
Beta has positive and significant effect to the stock
website of Indonesia stock Exchange (www.ix.co.id) and
price refer to the data processing result, so the formulated
company annual report.
hypothesis is suitable with the result of this research.
This research used companies in the financial
Systematic risk (beta) as part of market risk is highly
industry listed on Indonesia stock exchange for the period
dependent on investors, because the market conditions
of 2009 – 2013 which sample were taken from 18
take effect in the changes of stock price that generally
companies based on purposive sampling technique. Panel
associated with changes in investor expectations about
data regression methods have been conducted to explain
company future. Higher expectations of investors, then
relationship between stock price and ROI, Beta, DAR,
the higher of systematic risk (beta). The result of this
DPR, and IO variables.
research is suitable with the research conducted by [12].
The regression model used in this research has passed
DAR also has no impact significantly toward stock
from classical assumption tests and the empirical result
pricing same with ROI based on data processing result, so
show that the independent variables used simultaneously
the formulated hypothesis is not suitable with the result of
able to describe the dependent variable in a good way and
this research. This research result contrary with the theory
the estimation model is fixing.
proposed by Modigliani and Miller who stated that the
Individually, this research were found there are
utilization of debt in the firm will increase the value of the
positive and significant relationship between beta and
firm, and for certain will increase the firm stock’s price.
institutional ownership with stock price in the financial
This condition gives an interpretation that the level of
industry listed at Indonesia Stock Exchange, and ROI,
debt ratio used by the firm does not affect firm share
DAR and DPR were found no impact on the firm stock
price. This result contrary with research conducted by [9],
price. Adjusted r square (R2) indicates that 18.18% of
[12] who said that leverage has positive and significant
independent variables are able to explain the percentage
impact on the firm stock price.
of variation in the dependent variable, while the
For the DPR also has no impact significantly toward
remaining 81.82% is explained by the variation of other
stock pricing based on data processing result, so the
variables outside of the regression model.
formulated hypothesis is not suitable with the result of
There have been several limitations of the research
this research. Refer to the signaling theory; dividend has a
which may affect the research results. The first, limited of
function as information transmitter to investor about the
research sample. In this research, sample used only 18
firm’s performance that makes the capital market react
companies in the financial industry that fulfill the criteria
positively as stated by [21] who said that when the firm
which are observed to identify factors that affecting
announces dividend increases, then the stock’s price will
company stock price. Thus, the researcher suggest that the
increase by one to three percent. Conversely when the
future research will use a wider research sample, like
firm reduces or get rid of the dividend, then the stock
more than one industry and longer period of time, so the
price will be decline up to 50%. This research result is
number of observation is bigger and more accurate.
suitable with research conduct by [16] and contrary with
The second, limited of independent variables. In this
research conducted by [10], [22], [23].
research, researcher only use ROI, Beta, DAR, DPR, and
Institutional ownership has positive and significant
IO as the independent variables, which use to identify
effect to the stock price refer to the data processing result,
factors that affecting company stock price. Based on the
so the formulated hypothesis is suitable with the result of
result of panel data regression methods specifically the
this research. Based on theory in the [2] the highest of
adjusted r square, the variation in the independent
institutional ownership in a firm will increase control to
variables (ROI, Beta, DAR, DPR, and IO) determined [14] L. Kurniawati, S. Manalu, and R.J.N Octavianus, ” Effect
18.18% of the variation in the firm stock price, meaning of Institutional Ownership to the Dividend Policy and Share
that there are other variables influencing the firm stock Price, Management Journal, Vol.15, No.1, November 2015.
[15] A. Haghighat, B. Farhangzadeh, and M. Haghighat, ”The
price, which are not examined in this research. Thus, the Impact of Institutional Ownership on Stock Price
researcher suggests that the future research will add more Synchronicity and Crash Risk”, International Journal of
independent variables by collaborating more theories. Business and Social Science, Vol. 6, No. 4(1), April 2015,
pp. 181-189.
[16] Nurmala, ”Effect of Dividend Policy on The Share Price at
Otomotive Company Listed in Indonesia Stock Exchange,
Independent Journal, Volume 9, No. 1, July – September
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