Financial Factors Affecting Price-to-Earnings Ratios in Canada


  • Natalia Popa Antalovschi Thompson Rivers University
  • Raymond A. K. Cox Thompson Rivers University



Financial factors, Price-to-Earnings Ratios, Canada


Purpose: The purpose of this study is to ascertain which financial factors affect the price-to-earnings ratios of Canadian firms.

Methodology: A sample of 578 Canadian firms, across 11 industries, listed on the Toronto Stock Exchange during 2011 to 2018 is examined. Stock prices and financial statements accounts data is collected from S & P Capital IQ. We compute 27 financial factors to use as independent variables to regress on the price-to-earnings ratio dependent variables employing the Statistical Package for Social Sciences (SPSS) utilizing the software program’s forced, forward, and backward selection methods. Robustness tests are conducted using alternative dates (after the fiscal year end) to discover which model of financial factors best explains the forward price-to-earnings ratio as well as other statistical methods such as analysis of variance.

Results: We find a unique model for each of the 3 models based on the forward price-to-earnings ratio date. The financial factors that explain each of the dates after the end of the fiscal year (1 month, 2 months, and 3 months) are the 4 variables: net profit margin, return on investment, total asset turnover, and the natural logarithm of the total assets. For model 3 (1 month after fiscal year end), in addition to the previous 4 factors, the dividends per share is part of the regression equation. All 3 models have strong statistically significant results at an alpha level of one percent. Further, industry effects are deduced and presented.

Unique contribution to theory, policy, and practice: The results are unique to a Canadian sample of firms post- International Financial Reporting Standards (IFRS) adoption. Companies can utilize the empirical findings to manage their financial performance to maximize their price-to-earnings ratio. A product of a firm’s higher price-to-earnings ratio is a lower cost of capital which expands the corporation’s investment opportunities. Investors can apply this research to develop investment strategies hinged on price-to-earnings ratios to augment investment returns.

Author Biographies

Natalia Popa Antalovschi, Thompson Rivers University


Raymond A. K. Cox, Thompson Rivers University

Professor of Finance, School of Business and Economics


Afza, T., & Tahir, S. (2012). Determinants of Price-earnings Ratio: The Case of Chemical Sector of Pakistan. International Journal of Academic Research in Business and Social Sciences, 2(8), 331-343. Retrieved from

Akhtar, T., & Rashid, K. (2015). The Relationship Between Portfolio Returns and Market Multiples: A Case Study of Pakistan. Oeconomics of Knowledge, 7(3), 2-28. Retrieved from

Anderson, K., & Brooks, C. (2006). Decomposing the Price-earnings Ratio. Journal of Asset Management, 6(6), 456-469.

Arslan, H., Iltas, Y., & Kayhan, T. (2017). Target P/E Ratio Determinants in the Turkish Stock Market: Earning Volatility Effect. Theoretical and Applied Economics, 24(4), 65-74. Retrieved from

Basu, S. (1977). Investment Performance of Common Stocks in Relation to Their Price-earnings Ratios: A Test of the Efficient Market Hypothesis. The Journal of Finance, 32(3), 663-682.

Beaver, W., & Morse, D. (1978). What Determines Price-Earnings Ratios? Financial Analysts Journal, 34(4), 65-76.

Bhayo, M.-u.-R., Khan, M. A., & Shaikh, R. S. (2011). An Idiosyncratic Explanation of Earnings-Price Ratio based on Financial Statement Analysis. International Journal of Business and Social Science, 2(9), 243-249. Retrieved from

Bodhanwala, R. J. (2014). Testing the Efficiency of Price-earnings Ratio on Constructing Portfolio. Journal of Applied Finance, 20(3), 111-118. Retrieved from

Cengiz, H. (2014). Effects of International Financial Reporting Standards Application on Financial Ratios in Turkey. International Journal of Management, Economics and Business, 10(21), 163-177.

Chhaya, G., & Nigam, P. (2015). Value Investing with Price-earnings Ratio in India. Journal of Applied Finance, 21(2), 34-48.

Constand, R. L., Freitas, L. P., & Sullivan, M. J. (1991). Factors Affecting Price Earnings Ratios and Market Values of Japanese Firms. Financial Management, 20(4), 68-79.

Dayag, A. J., & Trinidad, F. (2019). Price-Earnings Multiple as an Investment Assessment Tool in Analyzing Stock Market Performance of Selected Universal Banks in the Philippines. International Journal of Research in Business and Social Science, 8(4), 17-33.

Divanbeygi, R., & Tehrani, R. (2013). Study of the Factors Affecting P/E Coefficient Given Type of Industry (Growth Rate and Payout Ratios) in Tehran Stock Exchange. Advances in Environmental Biology, 7(9), 2415-2422. Retrieved from

Dutta, K. D., Saha, M., & Das, D. C. (2018). Determinants of P/E Ratio: An Empirical Study on Listed Manufacturing Companies in DSE. International Journal of Scientific and Research Publications, 8(4), 167-174.

Faezinia, V., Ohadi, F., & Janani, M. H. (2012). The Quantitative Study of Effective Factors on Price-Earnings Ratio in Capital Market of Iran. Interdisciplinary Journal of Contemporary Research in Business, 3(10), 550-559.

Fesokh, A. A., & Haddad, F. S. (2019). Determinants of the Price Earnings Ratio in the Manufacturing Industries in Jordan. Jordan Journal of Business Administration, 15(2), 227-235. Retrieved from

Goodell, J. W., & Bodey, R. A. (2012). Price-earnings Changes During US Presidential Election Cycles: Voter Uncertainty and Other Determinants. Public Choice, 150, 633-650.

Graham, B., & Dodd, D. L. (1934). Security Analysis. Whittlesey House, McGraw-Hill Book Co., New York.

Houmes, R., & Chira, I. (2015). The Effect of Ownership Structure on the Price Earnings Ratio - Returns Anomaly. International Review of Financial Analysis, 37, 140-147.

Idrus, M. I., Ali, M., Mariana, R., & Jusni. (2015). The Analysis of Profitability and Its Effect on Price Earnings Ratio as well as the Impact of the Spending Policy Working Capital Aggressive of Food and Beverage Industrial Company in Indonesia. Journal of Research in Business and Management, 3(8), 7-11. Retrieved from

Ikoku, A. E., Hosseini, A., & Okany, C. T. (2010). Can Price-Earnings Ratios Predict Stock Prices? Evidence from the Nigerian Equity Market. The International Journal of Finance, 22(4), 6581-6611.

Itemgenova, A., & Sikveland, M. (2020). The Determinants of the Price-earnings Ratio in the Norwegian Aquaculture Industry. Journal of Commodity Markets, 17, 1-10.

Jordan, C. E., Clark, S. J., & Donald, M. (2009). Using Financial Statement Analysis to Explain the Variation in Firms' Earnings-price Ratios. Academy of Accounting and Financial Studies, 13(1), 91-101.

Kasilingam, R., & Ramasundaram, G. (2011). Price Earnings Multiples: Actual Determinants. SCMS Journal of Indian Management, 8(3), 106-118. Retrieved from

Kumar, S., & Warne, D. P. (2009). Parametric Determinants of Price-earnings Ratio in Indian Capital Markets. Journal of Applied Finance, 15(9), 63-82.

Kurach, R., & Slonski, T. (2015). The PE Ratio and the Predicted Earnings Growth - The Case of Poland. Folia Oeconomica Stetinensia, 15(1), 127-138.

Lantto, A. M., & Sahlstrom, P. (2009). Impact of International Financial Reporting Standard Adoption on Key Financial Ratios. Accounting and Finance, 49(2), 341-361.

Lueg, R., Punda, P., & Burkert, M. (2014). Does Transition to IFRS Substantially Affect Key Financial Ratios in Shareholder-oriented Common Law Regimes? Evidence from the UK. Advances in Accounting, incorporating Advances in International Accounting, 30(1), 241-250.

Lutfi, M., & Arsitha, J. (2016). The Analysis of Factors Affecting Price Earnings Ratio on the Company Shares Registered in Jakarta Islamic Index. Academic Journal of Economic Studies, 2(3), 55-63.

Marozzi, M., & Cozzucoli, P. C. (2016). Inter-industry Financial Ratio Comparison of Japanese and Chinese Firms Using a Permutation Based Nonparametric Method. Electronic Journal of Applied Statistical Analysis, 9(1), 40-57.

McWilliams, J. D. (1966). Prices, Earnings and P-E Ratios. Financial Analysts Journal, 22(3), 137-142.

Nikbakht, E., & Polat, C. (1998). A Global Perspective of P/E Ratio Determinants: The Case of ADRS. Global Finance Journal, 9(2), 253-267.

Penman, S. H. (1996). The Articulation of Price-earnings Ratios and Market-to-Book Ratios and the Evaluation of Growth. Journal of Accounting Research, 34(2), 235-259.

Rahman, L. M., & Shamsuddin, A. (2019). Investor Sentiment and the Price-earnings Ratio in the G7 Stock Markets. Pacific-Basin Finance Journal, 55, 46-62.

Ramcharran, H. (2002). An Empirical Analysis of the Determinants of the P/E Ratio in Emerging Markets. Emerging Markets Review, 3(2), 165-178.

Sezgin, F. (2010). An Empirical Investigation of the Relationship Among P/E Ratio, Stock Return and Dividend Yields for Istanbul Stock Exchange. International Journal of Economics and Finance Studies, 2(1), 15-23. Retrieved from

Wisniewski, T. P., Lightfoot, G., & Lilley, S. (2012). Speculating on Presidential Success: Exploring the Link Between the Price–earnings Ratio and Approval Ratings. Journal of Economics & Finance, 36(1), 106-122.




How to Cite

Antalovschi, N. P. ., & Cox, R. A. K. . (2021). Financial Factors Affecting Price-to-Earnings Ratios in Canada. International Journal of Finance, 6(2), 43–61.