Preprint Article Version 1 This version is not peer-reviewed

Market Risk and Financial Performance of Non-financial Companies Listed on the Moroccan Stock Exchange

Version 1 : Received: 15 January 2019 / Approved: 16 January 2019 / Online: 16 January 2019 (13:10:11 CET)

How to cite: Kassi, D.F.; Rathnayake, D.N..; Edjoukou, A.J.R.. Market Risk and Financial Performance of Non-financial Companies Listed on the Moroccan Stock Exchange. Preprints 2019, 2019010167 (doi: 10.20944/preprints201901.0167.v1). Kassi, D.F.; Rathnayake, D.N..; Edjoukou, A.J.R.. Market Risk and Financial Performance of Non-financial Companies Listed on the Moroccan Stock Exchange. Preprints 2019, 2019010167 (doi: 10.20944/preprints201901.0167.v1).

Abstract

This study examines the effect of market risk on the financial performance of 31 non-financial companies listed on the Casablanca Stock Exchange (CSE) over the period 2000-2016. We utilize three alternative variables to assess financial performance, namely return on assets, return on equity and profit margin. Next, we use the degree of financial leverage, the book-to-market ratio, and the gearing ratio as market risk variables. Besides, we employ the pooled OLS model, the fixed effects model, the random-effects model, the difference GMM and the system GMM models. The results show that market risk indicators have a negative and significant influence on the companies' financial performance. The elasticities are greater following the book-to-market ratio compared to the degree of financial leverage and the gearing ratio, respectively. In most cases, the firm size, the tangibility ratio, and the cash holdings ratio have a positive effect on financial performance, whereas the firms' age, the debt-to-income ratio, stock turnover, and leverage hurt the performance of these non-financial companies. Therefore, decision-makers and managers should mitigate market risk through appropriate strategies of risk management, such as derivatives and insurance techniques.

Subject Areas

Market risk, Financial performance, Non-financial firms, Morocco

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