Multivariate partial adjustment of financial ratios: a Bayesian hierarchical approach
In this paper we propose a multivariate extension of the partial adjustment model of financial ratios. To that end, we use a dynamic factor model which assumes that financial ratios measuring, essentially, the same economic-financial dimension of the firm evolve in a similar way, reflecting the evolution of the common factor. The proposed model is hierarchical with three levels. The first describes the relationship between each ratio and its common factor; the second describes the evolution of the common factors over time by means of Lev's (1969) partial adjustment model; and the third analyzes the similarity of firms' adjustment coefficients, taking into account their characteristics. The methodology is applied to the analysis of a set of financial ratios related to the business and financial structure of the firm. Copyright © 2008 John Wiley & Sons, Ltd.
Volume (Year): 23 (2008)
Issue (Month): 1 ()
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