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Analyzing long-term average adjustment of financial ratios with spatial interactions

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  • Mate-Sanchez, Mariluz
  • López Hernández, Fernando A.
  • Lacambra, Jesus Mur

Abstract

The aim of this paper is to put forward a beta convergence model using spatial interaction to evaluate the dynamics of financial ratios. We overcome some of the limitations that come from the traditional partial adjustment model by relating both models. We show that the parameters of the two models may be connected. As an example, we discuss the case of a large sample of medium to high-tech industrial small and medium enterprises (SMEs) located along the Spanish Mediterranean coast. Our findings support the existence of a long-term average adjustment process in the financial ratios of this set of companies which depends on the characteristics of the firms in their neighborhood.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 4 ()
Pages: 1370-1376

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:4:p:1370-1376

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Financial ratios; Dynamic adjustment; Spatial interactions; Partial adjustment model; Beta convergence;

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References

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  1. Stephen Dobson & Carlyn Ramlogan-Dobson & Eric Strobl, 2012. "Convergence or divergence in cross-country growth?," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(3), pages 417-424, November.
  2. Jes�s Mur & Fernando L�pez & Marcos Herrera, 2010. "Testing for Spatial Effects in Seemingly Unrelated Regressions," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(4), pages 399-440.
  3. Viral V. Acharya & Heitor Almeida & Murillo Campello, 2005. "Is Cash Negative Debt? A Hedging Perspective on Corporate Financial Policies," NBER Working Papers 11391, National Bureau of Economic Research, Inc.
  4. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, 08.
  5. Lee Pinkowitz & René Stulz & Rohan Williamson, 2006. "Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross-country Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2725-2751, December.
  6. Viviana Fernández, 2007. "Spatial Linkages in International Financial Markets," The Institute for International Integration Studies Discussion Paper Series iiisdp234, IIIS.
  7. Jose Luis Gallizo & Pilar Gargallo & Manuel Salvador, 2008. "Multivariate partial adjustment of financial ratios: a Bayesian hierarchical approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(1), pages 43-64.
  8. Peles, Yoram C & Schneller, Meir I, 1989. "The Duration of the Adjustment Process of Financial Ratios," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 527-32, August.
  9. Wu, Chunchi & Ho, Shih-Jen Kathy, 1997. " Financial Ratio Adjustment: Industry-Wide Effects or Strategic Management," Review of Quantitative Finance and Accounting, Springer, vol. 9(1), pages 71-88, July.
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