Financial Soundness Index for the Private Corporate Sector in Colombia

Juan S. Lemus-Esquivel (), Carlos A. Quicazán-Moreno (), Jorge L. Hurtado-Guarín () and Angélica Lizarazo-Cuéllar ()

No 13415, Borradores de Economia from Banco de la Republica

Abstract: This paper has as main objective to build a composite metric of financial soundness for the private corporate sector in Colombia. Instead of relying on the individual and sometimes restrictive financial ratio analysis approach, the purpose of this document is to provide a single metric aimed at measuring the financial health of firms. Said metric, the financial soundness index, is derived by employing the cross-section approach of principal component analysis. For the time period of 2000-2013, the results allow to identify which industries have a weak, strong or similar balance sheet performance relative to that observed for the private corporate sector as a whole. Furthermore for firms that are debtors of the Colombian financial system, validation tests on the index confirm the apparent relationship between accounting data and the credit risk perception of and materialization for financial intermediaries.

Keywords: firms’ financial soundness; principal component analysis; financial ratios; composite indices; financial stability. (search for similar items in EconPapers)
JEL-codes: C3 G30 G32 L25 (search for similar items in EconPapers)
Pages: 23
Date: 2015-08-04
New Economics Papers: this item is included in nep-acc and nep-cfn
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http://www.banrep.gov.co/sites/default/files/publicaciones/archivos/be_898.pdf

Related works:
Working Paper: Financial Soundness Index for the Private Corporate Sector in Colombia (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000094:013415

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