The need for an effective comprehensive financial performance score of the firm derived from accounting-based variables is increasingly felt in the stream of empirical research on relationships between financial performance and other dimensions of corporate per- formance. The solution to this problem must be pursued in literature on statistical-math- ematical techniques to synthesize financial performance through financial ratios derived from financial statements. Until now, however, studies have mainly focused on math- ematical modeling and ranking of companies, without using appropriate benchmarks to verify the relevance of the scores obtained and to establish, from a comparative perspec- tive between different techniques, which one provides the assessment that best summarizes financial performance. To make a contribution to this research gap, using a sample of 845 companies observed from 2014 to 2020, we compared Data Envelopment Analysis and Principal Component Analysis with two other applications based on new methodologies derived from the Multi-Criteria Decision Methods: The Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) and Grey Relational Analysis. We developed the 4 techniques on a set of 9 financial ratios expressive of profitability and operating efficiency, solvency, and liquidity, and Tobin’s q was used as a benchmark to compare the results pro- vided by the 4 techniques and identify the best performing one. We found that TOPSIS is the most effective methodology for synthesizing an effective accounting-based score of the firm’s financial performance.

Searching for an effective accounting-based score of firm performance: a comparative study between different synthesis techniques / Ricca, B.; Ferrara, M.; Loprevite, S.. - In: QUALITY AND QUANTITY. - ISSN 1573-7845. - 57:4(2023), pp. 3575-3602. [10.1007/s11135-022-01522-6]

Searching for an effective accounting-based score of firm performance: a comparative study between different synthesis techniques

Ferrara M.
Supervision
;
2023-01-01

Abstract

The need for an effective comprehensive financial performance score of the firm derived from accounting-based variables is increasingly felt in the stream of empirical research on relationships between financial performance and other dimensions of corporate per- formance. The solution to this problem must be pursued in literature on statistical-math- ematical techniques to synthesize financial performance through financial ratios derived from financial statements. Until now, however, studies have mainly focused on math- ematical modeling and ranking of companies, without using appropriate benchmarks to verify the relevance of the scores obtained and to establish, from a comparative perspec- tive between different techniques, which one provides the assessment that best summarizes financial performance. To make a contribution to this research gap, using a sample of 845 companies observed from 2014 to 2020, we compared Data Envelopment Analysis and Principal Component Analysis with two other applications based on new methodologies derived from the Multi-Criteria Decision Methods: The Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) and Grey Relational Analysis. We developed the 4 techniques on a set of 9 financial ratios expressive of profitability and operating efficiency, solvency, and liquidity, and Tobin’s q was used as a benchmark to compare the results pro- vided by the 4 techniques and identify the best performing one. We found that TOPSIS is the most effective methodology for synthesizing an effective accounting-based score of the firm’s financial performance.
2023
Financial performance · Data envelopment analysis · Principal component analysis · Multi-criteria decision methods · Tobin’s q
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.12318/139107
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