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Dynamic Trade-Offs In Financial Performances Of Romanian Companies

Author

Listed:
  • Alexandra Horobet

    (Academy of Economic Studies Bucharest, Romania)

  • Radu Lupu

    (Academy of Economic Studies Bucharest, Romania)

  • Sorin Dumitrescu

    (Academy of Economic Studies Bucharest, Romania)

  • Dan Gabriel Dumitrescu

    (Academy of Economic Studies Bucharest, Romania)

  • Iulia TINTEA

    (Academy of Economic Studies Bucharest, Romania)

Abstract

Our research objectives are twofold: (1) we use the Du Pont model and market ratios such as PER (price-earnings-ratio) and EPS (earnings-per-share) to explain the causes of financial perfor- mances of Romanian companies listed on the Bucharest Stock Exchange for 2002-2009 and to identify the dynamic trade-off among efficiency, profitability and leverage across companies; (2) we develop a cross-sectional analysis of the links between financial statements based and market based indicators, aiming at determining whether fundamental analysis is a significant source of information for equity market investors. We find that over the period Romanian companies’ performances fluctuated signifi- cantly, maybe with the exception of financial leverage and to some extent TAT, regardless of how one measures performance, and that companies were not capable of using the trade-off between profitabil- ity and efficiency to boost their ROA and ROE. Companies’ performance in the stock market is not explained by their operational and financial performance, with the exception of PER and EPS. These results indicate a decoupling between companies’ performance reflected in their financial reports and the performance investors obtain from trading them in the stock market. They also point towards the little importance awarded by for companies’ performance shown in their financial reports.

Suggested Citation

  • Alexandra Horobet & Radu Lupu & Sorin Dumitrescu & Dan Gabriel Dumitrescu & Iulia TINTEA, 2011. "Dynamic Trade-Offs In Financial Performances Of Romanian Companies," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 2011, pages 85-100, july.
    • Handle: RePEc:aic:journl:y:2011:v:se:p:85-100
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    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
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    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    5. Basu, S, 1977. "Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, American Finance Association, vol. 32(3), pages 663-682, June.
    6. repec:bla:jfinan:v:43:y:1988:i:2:p:507-28 is not listed on IDEAS
    7. Fama, Eugene F & French, Kenneth R, 1995. "Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-155, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Maria Daniela BONDOC & Mihaela Iuliana DUMITRU, 2014. "Analysis Of The Indicators Specific To Entities Listed On The Capital Market And Their Role In Quantifying Company Performance," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 13(1), pages 73-84.
    2. BALTEŞ Nicolae & DRAGOE Alexandra-Gabriela-Maria & COZMA Maria-Daciana, 2019. "Study Regarding The Influence Of The Endogenous Variables On The Change Of The Financial Performance Of The Economic Entity," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 71(1), pages 8-17, March.
    3. PANAIT, Iulian, 2014. "Romanian Financial Market’S Reaction To Fed Tapering Talk During 2013," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 18(4), pages 19-30.

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    More about this item

    Keywords

    Financial performance; Romania; fundamental analysis; market analysis; Du Pont system;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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