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Investment decision making using a combined factor analysis and entropy-based topsis model

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  • Li-Chang Hsu

Abstract

Traditionally, the return on assets and the return on equity are used as the criteria in the evaluation of financial performance, while risk considerations are ignored. Therefore, this study combined financial ratio variables and the RAROC (risk-adjusted rate of return on capital) as the evaluation criteria and developed a financial performance evaluation model. The proposed evaluation model combines factor analysis with entropy weight and the TOPSIS (technique for order performance by similarity to ideal solution) to evaluate the financial performance of Taiwan's 50 listed opto-electronic companies. Finally, Spearman's and Kendall's rank correlations are used to verify that there is no significant difference between the 2007 and 2008 rankings of the companies. The empirical results show the financial performance rankings of the companies before and after the global financial turmoil. These findings not only help investors making investment decisions, but also can help managers make decisions to improve their company's financial performance.

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  • Li-Chang Hsu, 2013. "Investment decision making using a combined factor analysis and entropy-based topsis model," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(3), pages 448-466, June.
    • Handle: RePEc:taf:jbemgt:v:14:y:2013:i:3:p:448-466
    DOI: 10.3846/16111699.2011.633098
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    Cited by:

    1. Nikouei, Mohammad Ali & Oroujzadeh, Maryam & Mehdipour-Ataei, Shahram, 2017. "The PROMETHEE multiple criteria decision making analysis for selecting the best membrane prepared from sulfonated poly(ether ketone)s and poly(ether sulfone)s for proton exchange membrane fuel cell," Energy, Elsevier, vol. 119(C), pages 77-85.
    2. Chia-Chen Yang & Shang-Ling Ou & Li-Chang Hsu, 2019. "A Hybrid Multi-Criteria Decision-Making Model for Evaluating Companies’ Green Credit Rating," Sustainability, MDPI, vol. 11(6), pages 1-23, March.
    3. Prageeth Roshan Weerathunga & Chen Xiaofang & Manoj Samarathunga, 2019. "Firm-specific and Contextual Determinants of Sri Lankan Corporate Hotel Performance," International Journal of Economics and Financial Issues, Econjournals, vol. 9(3), pages 213-224.
    4. Brint, Andrew & Genovese, Andrea & Piccolo, Carmela & Taboada-Perez, Gerardo J., 2021. "Reducing data requirements when selecting key performance indicators for supply chain management: The case of a multinational automotive component manufacturer," International Journal of Production Economics, Elsevier, vol. 233(C).
    5. Ek-anong Tangrukwaraskul & Kiriya Kulchanarat, 0000. "Post Pandemic Digital Transformation and Comparative Analysis of ICT Firms in the Stock Exchange of Thailand using TOPSIS Technique," Proceedings of Economics and Finance Conferences 14716382, International Institute of Social and Economic Sciences.
    6. Yuexiang Yang & Lei Ren & Zhihui Du & Guanqun Tong, 2021. "Measurement and spatiotemporal analysis of high-quality development of China’s industry," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-25, December.
    7. P. R. Weerathunga & Cheng Xiaofang & W. H. M.S. Samarathunga & P. M. B. Jayathilake, 2020. "The Relative Effect of Growth of Economy, Industry Expansion, and Firm-Specific Factors on Corporate Hotel Performance in Sri Lanka," SAGE Open, , vol. 10(2), pages 21582440209, April.
    8. Satı, Zümrüt Ecevit, 2024. "Comparison of the criteria affecting the digital innovation performance of the European Union (EU) member and candidate countries with the entropy weight-TOPSIS method and investigation of its importa," Technological Forecasting and Social Change, Elsevier, vol. 200(C).

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