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

Author

Listed:
  • 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.

Suggested Citation

  • Mate-Sanchez, Mariluz & López Hernández, Fernando A. & Lacambra, Jesus Mur, 2012. "Analyzing long-term average adjustment of financial ratios with spatial interactions," Economic Modelling, Elsevier, vol. 29(4), pages 1370-1376.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:4:p:1370-1376
    DOI: 10.1016/j.econmod.2012.03.001
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    References listed on IDEAS

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    1. Viviana Fernandez, 2011. "Spatial linkages in international financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 11(2), pages 237-245.
    2. 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.
    3. Jesús Mur & Fernando López & Marcos Herrera, 2010. "Testing for Spatial Effects in Seemingly Unrelated Regressions," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(4), pages 399-440.
    4. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    5. 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, August.
    6. Acharya, Viral V. & Almeida, Heitor & Campello, Murillo, 2007. "Is cash negative debt? A hedging perspective on corporate financial policies," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 515-554, October.
    7. 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 527-532, August.
    8. 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.
    9. 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.
    10. 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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    Cited by:

    1. repec:spr:eurasi:v:8:y:2018:i:2:d:10.1007_s40821-017-0074-8 is not listed on IDEAS
    2. Maté-Sánchez-Val, Mariluz & López-Hernandez, Fernando & Mur-Lacambra, Jesús, 2017. "How do neighboring peer companies influence SMEs’ financial behavior?," Economic Modelling, Elsevier, vol. 63(C), pages 104-114.

    More about this item

    Keywords

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

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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