Proceedings

2.2. Results
Our preliminary evaluation reported in Table 2 indicates that all the considered
financial ratios are significant and positively correlated with the evolution of market
values.
Table 2. Market value of shares and financial ratios of issuers
Explanatory
Current liquidity ratio = 1.03*** (0.28)
Total current assets /
Total current liabilities
Quick ratio =
(Cash and short term investments+
Total receivable, net) /
Total current liabilities
Net treasury ratio =
Treasury, net / Total Assets
Dividends per share
~ 155 ~
0.99***(0.27)
0.25* (0.14)
0.98***(0.33)
M1 -2.42[0.02] -1.90[0.06] -2.14[0.03] -1.65[0.10]
M2 1.49[0.14] 1.23[0.22] 0.42[0.68] -0.52[0.68]
Sargan [0.74]
[0.77]
[0.64]
[0.61]
(Df=14) (Df=14) (Df=14) (Df=14)
Observations (balanced) 48 48 48 48
Standard errors (heteroskedasticity corrected) are in round brackets. The null that each
coefficient is equal to zero is tested using the second-step robust standard
errors.***/**/*- statistically significant, respectively at the 1%, 5%, and 10% level.
M1 and M2 are tests for first-order and second-order serial correlation in the firstdifferenced
residuals, asymptotically distributed as N(0,1) under the null hypothesis
of no serial correlation (based on robust two-steps GMM estimators). Sargan is a test
of the over-identifying restrictions, asymptotically distributed as χ2, under the null of
instruments’ validity (two-steps estimators).
Thus, the considered financial ratios can be viewed as providing for the investors a
synthetic description of the issuers’ performances and financial health as well as the
dividend policies. Based on their informational content, the investors can evaluate the
financial risks associated with holding and trading the stocks and, in caeteris paribus
conditions, the associated returns.
Consequently, Table 3 displays the results of a Principal Components Analysis on the
individual ratios in order to provide such a synthetic descriptor of the issuers’
financial status.
The first section of Table 3 summarizes the eigenvalues, showing the values, the
forward difference in the eigenvalues and the proportion of total variance explained.
Since we are performing principal components on a correlation matrix, the sum of the
scaled variances for the four ratios is equal to 4. The first principal component
accounts for 55% of the total variance while the second accounts for 28% of the total.
The first two components account for over 83% of the variation.