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Theoretical and Applied Economics
No. 4 / 2017 (613), Winter

Target P/E ratio determinants in the Turkish Stock Market: Earning volatility effect

İstanbul Şehir University, Turkey
Yuksel ILTAS
Ahi Evran University, Turkey
İstanbul Şehir University, Turkey

Abstract. This paper investigates that what are the determinants of target PE in the case of Turkish Stock Market. The general outputs: i) Projected dividend yield is the dominant factor on PE. ii) Boosted investments and growing top-line raise PE ratio. iii) PE ratios come down as companies' financial leverage and working capital needs grow. iv) Although stabilizing foreign exchange risks and gross profit margins with the aid of hedge tools and product diversity of the companies decreases the acceleration of profitability, it eventually augments PE ratio. Data from Borsa İstanbul covering 2000-2014 term have been modeled by GMM.

Keywords: PE, earning volatility, dividend yield, working capital, leverage.

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