The Relationship between Financial Indicators and Market Returns of (S and P 500) Companies in the Period 2012-2016

Abstract

This paper examines the relationship between accounting-based financial indicators and annual market returns for S&P 500 companies during 2012–2016. The study draws on company identification data, sector classifications, financial statement variables, and adjusted daily stock prices to construct annual measures of stock return, volatility, profitability, leverage, liquidity, research and development intensity, and capital expenditure intensity. The empirical approach combines descriptive statistics, sector-level comparisons, Pearson correlation analysis, and a linear regression model with sector fixed effects and HC3-robust standard errors. The findings indicate clear differences across sectors in firm size, profitability, return volatility, and annual stock performance, suggesting that sector characteristics are important when interpreting financial and market outcomes. However, the associations between individual accounting indicators and annual market returns are generally weak and inconsistent. The final regression model explains only a limited proportion of the variation in annual returns. Capital expenditure intensity, return on equity, and firm size show statistically significant negative relationships with annual returns, whereas other indicators exhibit little explanatory power. Overall, the results suggest that accounting indicators provide useful background information for assessing corporate performance, but they are not sufficient on their own to explain short-term stock-return behavior in large U.S.-listed companies. The evidence highlights the need to incorporate market expectations and broader macroeconomic factors in future research.