A comprehensive formal ranking of the popularity of financial ratios in multivariate modeling of corporate collapse

This paper provides a fonnal ranking of the popularity of financial ratios in modeling corporate collapse. The analysis identified 48 financial ratios and ranked them according to their usefulness as portrayed in 53 studies that have utilized such ratios in modeling corporate collapse. The methodologies adopted in those studies are predominantly of the "multivariate" type. The 53 studies extend from 1966 to 2002, inclusive.

Connection between commonly used financial ratios and misrepresentation of financial statements of collapsed corporations

This paper unravels dynamic and intriguing shifts in the use of financial ratios in signaling corporate collapse. An empirical examination of the anecdotal evidences from notable recent corporate collapses coupled with the short-lived usefulness of financial ratios in various prediction models suggest that companies(1) that deliberately misrepresent their financial statements may have taken cues from the ratios that are commonly investigated. This proposition is supported by an extensive examination of over 50 studies conducted between 1968 and 2002. The erosion in the reliability of numbers in financial statements has led to significant distortions in the predictive power of financial ratios when used in signaling corporate collapse. Recent collapses such as Parmalat in Europe, Enron and WorldCom in the U.S. and HIH in Australia, present yet another reminder that financial statement items are being misrepresented. These are all large corporations with well-established household names, and are for sure closely monitored by financial communities around the globe. Nevertheless, a common thread seems to link the collapse of these companies: none of these collapses were foreseen by credit rating agencies or foretold by the widely accepted bankruptcy prediction models. Why? This paper attempts to use some anecdotal evidence in order to provide logical explanations to the existence of such a common thread. It argues that there appears to be anecdotal evidence to suggest that directors of publicly listed companies that have collapsed may have deliberately misrepresented financial statement items.

Financial fraud and the use of ratios in corporate collapse prediction models

This paper highlights the prevalence and extent of financial fraud amongst collapsed corporations. In doing so, it examines the recent spectacular corporate collapses of Parmalat in Europe, Enron and WoridCom in the USA and HIH in Australia. A new methodology that provides empirical evidence to the financial fraud claims found in the literature, is then put forward. The proposed methodology argues that if financial fraud was a possibility amongst collapsed corporations, then two premises ought to be observed in the literature on ratio based multivariate modelling for predicting corporate collapse. First, in the absence of financial fraud, we expect the models to consistently predict corporate collapse with a high degree of accuracy; particularly, as one approaches the incident of collapse. Second, if financial fraud takes place and statement figures are distorted, then we expect the financial ratios, which are the predictor variables in these models, to lose relevance and therefore their use in models will be short-lived. Empirical support from Hossari and Rahman (2004) and Hossari and Rahman (2005) is presented as evidence to the two premises.

Time-varying hedge ratios: an application to the Indian stock futures market

This paper investigates time-varying optimal hedge ratios in individual stock futures markets in India. The analysis employs data on individual stock futures from an unexplored but highly traded (both in terms of volume and quantity) emerging market. The hedge ratios derived in this study incorporate mean reversion in volatility, which is an important extension of the bivariate BEKK-GARCH model of Engle and Kroner. This extension generates improved optimal hedge ratios over the traditional BEKK-GARCH model and static error correction type alternatives.

An examination of the effect on debt/equity ratios with the adoption of IAS 19 : employee benefits

A number of countries have adopted the International Financial Reporting Standards (IFRS) as a means of harmonising financial statements. .This paper examines the effect of the adoption of IFRS, relating to post employment benefits and its effects on debt/equity ratios. The adoption of the IFRS resulted in most companies reporting a substantial increase in liabilities, a
decrease in shareholders’ equity and a corresponding increase
in debt/equity ratios.

Time varying hedge ratios : an application to the Indian stock futures market

This paper investigates time-varying optimal hedge ratios in individual stock futures markets in India. The analysis employs data on individual stock futures from an unexplored but highly traded (both in terms of volume and quantity) emerging market. The hedge ratios derived in this study incorporate mean reversion in volatility, which is an important extension of the bivariate BEKK-GARCH model of Engle and Kroner. This extension generates improved optimal hedge ratios over the traditional BEKK-GARCH model and static error correction type alternatives.

Oxygen and hydrogen isotopic ratios and chemistry in semiarid land river water, Southwest Victoria, Australia

Salt in a salt lake accumulated as a result of perfect evaporation of inflow water during the dry season. Water in a salt lake had a high salinity and its isotope indicated a little evaporation in the wet season because precipitation replenished the salt lake and there was no residual water during evaporation process in salt lake. In a marsh, both perfect and partial disappearance of water by repeated evaporation and water supply from upstream contributed to high salinity and high isotopic ratios because residual water had high isotopic ratios and dried areas accumulated salt. On the other hand, salinity and isotopic ratios depended on ratio of evaporation and water supply during evaporation excluding perfect disappearance of water.

Connection between commonly used financial ratios and misrepresentation of financial statements of collapsed corporations

This paper unravels dynamic and intriguing shifts in the use of financial ratios in signaling corporate collapse. An empirical examination of the anecdotal evidences from notable recent corporate collapses coupled with the short-lived usefulness of financial ratios in various prediction models suggest that companies(1) that deliberately misrepresent their financial statements may have taken cues from the ratios that are commonly investigated. This proposition is supported by an extensive examination of over 50 studies conducted between 1968 and 2002. The erosion in the reliability of numbers in financial statements has led to significant distortions in the predictive power of financial ratios when used in signaling corporate collapse. Recent collapses such as Parmalat in Europe, Enron and WorldCom in the U.S. and HIH in Australia, present yet another reminder that financial statement items are being misrepresented. These are all large corporations with well-established household names, and are for sure closely monitored by financial communities around the globe. Nevertheless, a common thread seems to link the collapse of these companies: none of these collapses were foreseen by credit rating agencies or foretold by the widely accepted bankruptcy prediction models. Why? This paper attempts to use some anecdotal evidence in order to provide logical explanations to the existence of such a common thread. It argues that there appears to be anecdotal evidence to suggest that directors of publicly listed companies that have collapsed may have deliberately misrepresented financial statement items.

High individual repeatability and population differentiation in stable isotope ratios in winter-grown collared flycatcher Ficedula albicollis feathers

For migrants, we often lack complete information of their spatial distribution year round. Here, we used stable carbon, nitrogen and hydrogen isotope ratios extracted from feathers grown at the wintering sites of the long-distance migratory collared flycatcher Ficedula albicollis, to study how individuals from different breeding populations are distributed at the wintering sites. A sub-sample of birds was also sampled in two consecutive years to test for the repeatability of isotope ratios. Birds from the same breeding populations had more similar isotope ratios compared to birds from other nearby populations (10–100 km apart). Furthermore, isotope repeatability within individuals was high, implying that the observed pattern of isotope variation is consistent between years. We put forward two hypotheses for these patterns; 1) strong wintering site philopatry and migratory connectivity, suggesting that migratory connectivity may potentially be found on a much smaller spatial scale than previously considered, and 2) consistent interpopulation differentiation of feeding ecology at their wintering site.

Application of power functions to chromatographic data for the enhancement of signal to noise ratios and separation resolution

Chromatographic detection responses are recorded digitally. A peak is represented ideally by a Guassian distribution. Raising a Guassian distribution to the power ‘n’ increases the height of the peak to that power, but decreases the standard deviation by √n. Hence there is an increasing disparity in detection responses as the signal moves from low level noise, with a corresponding decrease in peak width. This increases the S/N ratio and increases peak to peak resolution. The ramifications of these factors are that poor resolution in complex chromatographic data can be improved, and low signal responses embedded at near noise levels can be enhanced. The application of this data treatment process is potentially very useful in 2D-HPLC where sample dilution occurs between dimension, reducing signal response, and in the application of post-reaction detection methods, where band broadening is increased by virtue of reaction coils. In this work power functions applied to chromatographic data are discussed in the context of (a) complex separation problems, (b) 2D-HPLC separations, and (c) post-column reaction detectors.