Analyzing Financial Health of the SMES Listed in the AERO Market of Bucharest Stock Exchange Using Principal Component Analysis

Diana Sabau-Popa (), Ramona Simut, Laurențiu Droj and Corneliu Cristian Bențe
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Ramona Simut: Department of Economics and Business, Faculty of Economic Sciences, University of Oradea, 410087 Oradea, Romania
Laurențiu Droj: Department of Finance–Accounting, Faculty of Economic Sciences, University of Oradea, 410087 Oradea, Romania
Corneliu Cristian Bențe: Department of Finance–Accounting, Faculty of Economic Sciences, University of Oradea, 410087 Oradea, Romania

Sustainability, 2020, vol. 12, issue 9, 1-15

Abstract: In this paper we aimed to build a composite financial index for measuring the financial health of the companies listed in the AERO (Alternative exchange in Romania) market of the Bucharest Stock Exchange. We used a principal component analysis in order to build this composite financial index using the rates of return, liquidity and the management of 25 companies listed in the AERO market for the period 2011–2018. We conceived this composite indicator as a score function that established according to the numerical values that result from its application when a company was financially healthy, when it had a poor financial health and when it was financially stable. In order to test the financial health of the selected SMEs (small and medium enterprises), we used the one sample t -test under the model of the study and the three classifications of Z (Z < 0—companies with poor financial health, 0 ≤ Z ≤ 0.5—companies with good financial health and Z > 0.5—companies with very good financial health). In this study we also aimed to identify the possible correlations between the solvency rate and the financial health index and between solvency rate and the evolution of some economic and financial measures of the companies’ activities. The results of the regression analysis using panel data showed a positive and statistically significant relation between solvency and the three rates (rates of return, of liquidity and of management, respectively) determined using the analysis of the principal components. The former model of the solvency rate identified correctly 94.9% of the SMEs with poor financial health, 40% of the SMEs with stable financial health and 72.2% of the SMEs with good financial health.

Keywords: financial indicators; composite index; PCA; financial sustainability; small and medium-sized companies; financial health; AERO market (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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