Comparing Multi-Factor Asset Pricing Models to Explain the Variance in Common Stock Returns: An Analytical Study of the Iraq Stock Exchange

Abstract

 The current research studied the impact of financial strategy, with its financial indicators (debt-to-equity ratio, tangible assets ratio, and dividend payout ratio), on performance growth, measured by its three indicators (return on capital employed, return on assets, and earnings per share), for a sample of cement manufacturing companies listed on the Egyptian Stock Exchange. The research population consisted of a group of cement manufacturing companies whose shares were listed on the Egyptian Stock Exchange (EGX) for the period 2009-2024. Descriptive statistics were used to analyze the means, variance, and standard deviation of the research indicators to understand the nature of the data. Inferential statistics were used to draw relevant conclusions. Consequently, diagnostic tests were conducted using EViews-12 software to determine the suitability of the estimation method used to test the research hypotheses. Hausman's test was used to determine whether the Fixed Effect, Random Effect, or Pooled Ordinary Least Squares estimation technique was the most appropriate for the model. The relationship between the indicators was also tested and analyzed statistically and quantitatively using cross-sectional time data analysis. To better characterize the data, the Lagrangian Multiplier Test was performed on three models: pooled ordinary least squares, fixed random least squares, and so on, to select the best model. The results of these tests suggested the necessity of adopting a random effects model for the sample data and testing the hypotheses based on these results. The results also revealed that financial strategy measures had a significant impact on the performance growth of the studied companies. The research concluded that financial strategy indicators affect the performance growth of the studied companies, either individually or collectively.