Some Basic Properties of Financial Ratios: Evidence from an Emerging Capital Market
19 Pages Posted: 12 Aug 2006
Date Written: 2006
This study investigates the distributional characteristics and appropriate remedial actions of selected financial ratios from failed and non-failed Malaysian listed firms. A total of 66 listed firms with 330 observations and 65 variables were examined for the period from 1980 to 1996. The samples were divided into three sectors named mixed industry, combination of industrial and property and industrial sectors. Normality test was carried out to the data using Kolgomorov-Smirnov test adjusted to Lilliefors test. The finding shows that in all instances, only one variable (i.e., current asset percent) conformed to normal distribution. However, when specific sector was tested, some improvement on normality was observed after trimming outliers and data transformations. Remedial actions were carried out using three-transformation techniques namely natural log, square root and square. The natural log transformation outperforms the other techniques and the square transformation was the least effective. The findings suggest that outlier trimming improves the normality of variable after the data transformation, and this technique is more effective on the specific industry compared to the mixed industry sector.
Keywords: normality, distributional properties, transformation techniques, skewness, outliers
JEL Classification: M41, G29, A00
Suggested Citation: Suggested Citation