A Comparison of the Financial Characteristics of NAFTA and Latin American Manufacturing Firms

Gulser Meric,Ilhan Meric,Cengiz Haksever,J Drew Procaccino

doi:10.5195/emaj.2016.102

Abstract

Comparing the financial characteristics of firms in different countries and different regions has been a popular research topic in finance. However, NAFTA and Latin American manufacturing firms have never been compared. In this paper, we undertake such a study with the MANOVA (Multivariate Analysis of Variance) method and with data drawn from the Research Insight/Global Vintage database in October 2015. Our findings indicate that NAFTA manufacturing firms have less liquidity risk, but more financial risk, compared with Latin American Manufacturing firms. NAFTA manufacturing firms have significantly higher returns on equity due to achieving higher returns on assets and using more financial leverage. Latin American manufacturing firms have more efficient inventory management. However, NAFTA manufacturing firms have more efficient accounts receivable management and total assets management.

Highlights

We compare the financial characteristics of NAFTA and Latin American manufacturing firms
The multivariate F value test statistic (38.1) in the table indicates that the overall financial characteristics of NAFTA and Latin American manufacturing firms are significantly different at the 1percent level
MDA (Multiple Discriminant Analysis) and Multivariate analysis of variance (MANOVA) (Multivariate Analysis of Variance) are the two popular statistical techniques used in comparisons

Summary

Introduction

Comparing the financial characteristics of different groups of firms has long been a popular methodology in finance. Altman (1968), Beaver (1968), Deakin (1972), Moyer (1977), Edmister (1972), and Dambolena and Khoury (1980) predict bankruptcy by comparing the financial characteristics of bankrupt and non-bankrupt firms. Stevens (1973), Belkaoui (1978), Rege (1984), and Meric at al. (1991) identify the financial characteristics of firms that have been corporate takeover targets by comparing them with firms that have not been corporate takeover targets. Stevens (1973), Belkaoui (1978), Rege (1984), and Meric at al. (1991) identify the financial characteristics of firms that have been corporate takeover targets by comparing them with firms that have not been corporate takeover targets. (1988) and Meric and Meric (1992) identify the financial characteristics of firms which achieve stock market quotation by comparing them with firms that do not have stock market quotation. A number of studies compare the financial characteristics of firms in different countries. Meric and Meric (1989 and 1994) compare the financial characteristics of U.S and Japanese manufacturing firms and they find significant differences. We compare the financial characteristics of NAFTA and Latin American manufacturing firms

NAFTA and Latin American Economies

Methodology and Data

MANOVA Method

Empirical Findings

Summary and Conclusions