THE IMPACT OF THE SOVEREIGN-DEBT CRISIS ON THE FINANCIAL HEALTH OF GREEK LISTED COMPANIES

Peter J. Stavroulakis

Thesis Supervisor: Asst. Professor Dr. Panayiotis G. Artikis, University of Piraeus

AGRICULTURAL UNIVERSITY OF ATHENSDEPT. OF AGRICULTURAL ECONOMICS & RURAL DEVELOPMENT

POSTGRADUATE STUDIES PROGRAMME: MBA in AGRIBUSINESS MANAGEMENT

POSTGRADUATE THESIS

Research Questions

What is the temporal financial ratio behaviorof listed firms operating within a sovereign-debt crisis?

As a corollary, how does financial activity andperformance offset with the crisis ?

Is data mining, clustering, pattern recognitionand trend extraction (forecasting) of the timeseries effective?

Data Source: Bloomberg Database

Database Dissection: FTSE International ICB

ICB divides economic activity in:

10 industries 41 sectors 114 subsectors

This study focuses on 9 of the 10 industries:

Basic Materials, Consumer Goods, Consumer Services,Health Care, Industrials, Oil & Gas, Technology,Telecommunications and Utilities

Financial Ratios

Domains: Liquidity, Profitability, Activity,Growth, BS Structure, Financial Leverage, BSSize, Operating Performance, Valuation

Ratios Calculated: Cash ratio, ROA, ROE, NetProfit Margin, Asset Turnover, CAPEX Ratio,PP&E Ratio, Financial Leverage, Size,Productivity,Tobin’s Q

Time Span

Eleven years: 2001-2011

Sovereign-economy

Dynamic Sample

All listed corporations from the selected 9 industries

Dynamic sample:

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average

1 Basic Materials 24 24 24 25 25 25 25 25 25 25 25 25

2 Consumer Goods 66 68 69 69 69 69 69 70 70 70 70 69

3 Consumer Services 38 39 39 40 40 40 40 41 41 41 41 40

4 Health Care 9 9 9 9 9 9 9 9 10 10 10 9

5 Industrials 57 57 57 57 59 59 59 59 60 60 60 59

6 Oil & Gas 2 2 2 2 2 2 2 2 2 2 2 2

7 Technology 19 20 20 20 20 21 22 24 24 25 24 22

8 Telecommunications 2 2 2 2 2 2 2 1 1 1 1 2

9 Utilities 3 3 3 4 4 4 4 4 4 4 4 4

220 224 225 228 230 231 232 235 237 238 237 231

Year

Industry

Total

Number of Hellenic Listed Firms / Industry Classification

Methodology

Positive analysis: The financial ratios of 231listed firms are calculated and the averages ofthe 9 industries are extracted (from231*11*11 = 27,951 ratios calculated we areled to 9*11*11=1,086 industry averages)

Forecasting: From the time series of thefinancial ratios a linear regression model isgenerated (9*11=99 linear regression modelsin total)

Specifics

One-way ANOVA for the industries as groups: allp-values are less than the 0.05 significance level

Regression model diagnostics: coefficients ofdetermination, adjusted coefficients ofdetermination, residuals and (mean & single)prediction bands, parameter confidenceintervals, ANOVA and t-tests

Selected Empirical Findings

Findings are presented by industry

Selection based on the interest andpeculiarity of findings, as well as theeffectiveness (or ineffectiveness) of the linearregression

Basic Materials: Size and ROA

Size

R^2=92%

p-value=3.6*10^-6

ROA

R^2=66%

p-value=0.0022

2 4 6 8 10 12 14

2

1

0

1

2

3

2 4 6 8 10 12 140

100

200

300

400

Consumer Goods: ROE and CAPEX

ROE

R^2=76%

p-value=0.0005

CAPEX

R^2=80%

p-value=0.0002

2 4 6 8 10 12 14

30

20

10

0

2 4 6 8 10 12 14

7

6

5

4

3

2

1

0

Consumer Services: Activity and Leverage

2 4 6 8 10 12 141.08

1.10

1.12

1.14

1.16

1.18

1.20

Sales/TA

R^2=1%

p-value=0.77

2 4 6 8 10 12 14

26

28

30

32

34

36

38

Financial Leverage

R^2=74%

p-value=0.0007

Health Care: Net Profit Margin and Productivity

Net Profit Margin

R^2=45%

p-value=0.0233

Productivity

R^2=72%

p-value=0.0019

2 4 6 8 10 12 14

60

50

40

30

20

10

0

10

2 4 6 8 10 12 140.00

0.05

0.10

0.15

0.20

Industrials: Activity and BS Structure

Activity

R^2=82%

p-value=0.0001

PP&E/TA

R^2=76%

p-value=0.0005

2 4 6 8 10 12 14

0.55

0.60

0.65

0.70

0.75

2 4 6 8 10 12 14

40

42

44

46

48

50

52

Oil & Gas: Size and Operating Performance

Size

R^2=96%

p-value=1.4*10^-7

Productivity

R^2=73%

p-value=0.0008

2 4 6 8 10 12 140

1000

2000

3000

4000

2 4 6 8 10 12 140.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Technology: Net Profit Margin and Tobin’s Q

Net Profit Margin

R^2=85%

p-value=0.00006

Tobin’s Q

R^2=70%

p-value=0.0012

2 4 6 8 10 12 14

15

10

5

0

5

2 4 6 8 10 12 140.0

0.5

1.0

1.5

2.0

Telecommunications: Leverage and Tobin’s Q

Leverage

R^2=78%

p-value=0.0003

Tobin’s Q

R^2=44%

p-value:0.026

2 4 6 8 10 12 140

10

20

30

40

50

2 4 6 8 10 12 140.0

0.5

1.0

1.5

2.0

Utilities: Activity and Operating Performance

Activity

R^2=81%

p-value=0.0002

Productivity

R^2=76%

p-value:0.0047

2 4 6 8 10 12 14

0.26

0.28

0.30

0.32

0.34

0.36

0.38

2 4 6 8 10 12 140.00

0.05

0.10

0.15

0.20

0.25

Average Cash RatioAverageMinimumMaximum

2002 2004 2006 2008 20100.0

0.2

0.4

0.6

0.8

1.0

Averages of all the industries

Profitability

ROA

2002 2004 2006 2008 2010

30

20

10

0

10

Average profitability displays more of a long-term trend.

2002 2004 2006 2008 2010

60

40

20

0

20

Net Profit Margin

AverageMinimumMaximum

ROE

2002 2004 2006 2008 2010

200

150

100

50

0

50

AverageMinimumMaximum

Average Return on Equity

Activity

Average Revenue/TA

AverageMinimumMaximum

2002 2004 2006 2008 2010

0.5

1.0

1.5

2.0

2.5

3.0

Growth

Average CAPEX/TA

AverageMinimumMaximum

2002 2004 2006 2008 2010

30

25

20

15

10

5

0

BS Structure

Average PPE/TA

AverageMinimumMaximum

2002 2004 2006 2008 2010

30

40

50

60

70

80

Leverage

Average TD/TA

AverageMinimumMaximum

2002 2004 2006 2008 2010

20

30

40

50

60

Average financial leverage has grown by only 15%.

Size

Average TA

2002 2004 2006 2008 20100

500

1000

1500

2000

AverageMinimum

Operating Performance

Productivity: Revenue / Employees

2002 2004 2006 2008 2010

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Average productivity is rising substantially.

AverageMinimum

Valuation

Average Tobin’s Q

AverageMinimumMaximum

2002 2004 2006 2008 2010

0.5

1.0

1.5

2.0

2.5

3.0

Qualitative conclusions

Although the crisis is evident, we have topoint out the discrepancy of GDP andProfitability

The data hints to a longitudinal crisis and notonly a sovereign-debt crisis

The find concerning Size, Profitability,Leverage and Productivity could beconsidered as worthy of further investigation

The flags raised may facilitate direction ofstrategic selections

Linear Model Effectiveness

Ratio Materials Goods Services Health Industrials Oil & Gas Tech Telecom Utilities Min Max

Cash Ratio 64% 50% 33% 1% 36% 16% 2% 2% 26% 1% 64%

ROA 66% 74% 74% 45% 80% 28% 70% 0% 59% 0% 80%

ROE 19% 76% 58% 34% 77% 32% 61% 7% 74% 7% 77%

Net Profit Margin 61% 71% 72% 45% 39% 19% 85% 0% 34% 0% 85%

Asset Turnover 15% 4% 1% 61% 82% 4% 68% 2% 81% 1% 82%

CAPEX/TA 4% 80% 5% 0% 1% 0% 0% 1% 29% 0% 80%

PPE/TA 81% 85% 84% 83% 76% 0% 70% 50% 34% 0% 85%

Leverage 57% 69% 74% 68% 88% 62% 42% 78% 30% 30% 88%

Size 92% 85% 93% 68% 96% 96% 32% 73% 70% 32% 96%

Productivity 66% 76% 0% 72% 17% 73% 15% 13% 76% 0% 76%

Tobin's Q 58% 56% 54% 28% 64% 43% 70% 44% 3% 3% 70%

Ratio Materials Goods Services Health Industrials Oil & Gas Tech Telecom Utilities Min Max

Cash Ratio 0.003101 0.014563 0.063211 0.761005 0.051040 0.282695 0.671381 0.719002 0.131191 0.003101 0.761005

ROA 0.002229 0.000624 0.000659 0.023785 0.000192 0.092825 0.001312 0.951097 0.005731 0.000192 0.951097

ROE 0.179878 0.000451 0.006329 0.060822 0.000368 0.071846 0.004577 0.431924 0.000722 0.000368 0.431924

Net Profit Margin 0.004590 0.001094 0.000901 0.023264 0.041239 0.177005 0.000056 0.933236 0.057856 0.000056 0.933236

Asset Turnover 0.246392 0.568663 0.772800 0.004613 0.000119 0.570033 0.001711 0.674616 0.000175 0.000119 0.772800

CAPEX/TA 0.633165 0.000194 0.527668 0.938730 0.779397 0.910097 0.867751 0.800639 0.164870 0.000194 0.938730

PPE/TA 0.000146 0.000052 0.000066 0.000106 0.000474 0.839491 0.001228 0.015168 0.058671 0.000052 0.839491

Leverage 0.007177 0.001489 0.000732 0.001717 0.000019 0.004167 0.030527 0.000334 0.078317 0.000019 0.078317

Size 3.6*10^-6 0.000062 1.5*10^-6 0.001731 1.1*10^-7 1.4*10^-7 0.068415 0.000782 0.001421 1.4*10^-7 0.068415

Productivity 0.002429 0.000441 0.960309 0.001913 0.214786 0.000791 0.234415 0.311693 0.004740 0.000441 0.960309

Tobin's Q 0.006420 0.007761 0.009901 0.093448 0.003101 0.027910 0.001233 0.025816 0.600904 0.001233 0.600904

Coefficients of Determination

p-values

Limitations and Future Directions

Outcomes are dependant on methodology;conclusions should be extracted with caution

Further analysis/comparison with othereconomies would facilitate normativeconclusions

Extension of industry dissection and ratios

Comparison of the linear regression modelswith other forecasting methodologies

Thank you for your attention!