Proposal of an innovative MCDA evaluation methodology: knowledge discovery through rank reversal, standard deviation, and relationship with stock return

Mahmut Baydaş (), Orhan Emre Elma and Željko Stević
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Mahmut Baydaş: Necmettin Erbakan University
Orhan Emre Elma: Necmettin Erbakan University
Željko Stević: University of East Sarajevo

Financial Innovation, 2024, vol. 10, issue 1, 1-35

Abstract: Abstract Financial performance analysis is of vital importance those involved in a business (e.g., shareholders, creditors, partners, and company managers). An accurate and appropriate performance measurement is critical for decision-makers to achieve efficient results. Integrated performance measurement, by its nature, consists of multiple criteria with different levels of importance. Multiple Criteria Decision Analysis (MCDA) methods have become increasingly popular for solving complex problems, especially over the last two decades. There are different evaluation methodologies in the literature for selecting the most appropriate one among over 200 MCDA methods. This study comprehensively analyzed 41 companies traded on the Borsa Istanbul Corporate Governance Index for 10 quarters using SWARA, CRITIC, and SD integrated with eight different MCDA method algorithms to determine the position of Turkey's most transparent companies in terms of financial performance. In this study, we propose "stock returns" as a benchmark in comparing and evaluating MCDA methods. Moreover, we calculate the "rank reversal performance of MCDA methods". Finally, we performed a "standard deviation" analysis to identify the objective and characteristic trends for each method. Interestingly, all these innovative comparison procedures suggest that PROMETHEE II (preference ranking organization method for enrichment of evaluations II) and FUCA (Faire Un Choix Adéquat) are the most suitable MCDA methods. In other words, these methods produce a higher correlation with share price; they have fewer rank reversal problems, the distribution of scores they produce is wider, and the amount of information is higher. Thus, it can be said that these advantages make them preferable. The results show that this innovative methodological procedure based on 'knowledge discovery' is verifiable, robust and efficient when choosing the MCDA method.

Keywords: Financial performance; Share return; Standard deviation; Rank reversal; Capital Markets; MCDA evaluation methodology; Validation sensitivity and robustness analysis (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1186/s40854-023-00526-x

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