Some Basic Properties of Financial Ratios: Evidence from an Emerging Capital Market

19 Pages Posted: 12 Aug 2006

See all articles by Zulkarnain Muhamad Sori

Zulkarnain Muhamad Sori

INCEIF, The Global University of Islamic Finance

Mohamad Ali Abdul Hamid

Universiti Putra Malaysia

Annuar Nassir

University Putra Malaysia

Shamsher Mohamad

University Putra Malaysia - Graduate School of Management

Date Written: 2006

Abstract

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

Muhamad Sori, Zulkarnain and Abdul Hamid, Mohamad Ali and Nassir, Annuar and Mohamad, Shamsher, Some Basic Properties of Financial Ratios: Evidence from an Emerging Capital Market (2006). Available at SSRN: https://ssrn.com/abstract=923736 or http://dx.doi.org/10.2139/ssrn.923736

Zulkarnain Muhamad Sori (Contact Author)

INCEIF, The Global University of Islamic Finance ( email )

Lorong Universiti A
Kuala Lumpur, Kuala Lumpur 59100
Malaysia
+60376514173 (Phone)
8 (Fax)

HOME PAGE: http://www.inceif.org/

Mohamad Ali Abdul Hamid

Universiti Putra Malaysia ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

Annuar Nassir

University Putra Malaysia ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

Shamsher Mohamad

University Putra Malaysia - Graduate School of Management ( email )

Selangor Darul Ehsan
Serdang, Selangor 43400
Malaysia

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