An empirical investigation on ranking financial risk factors using AHP method

Hassan Ghodrati,Bahareh Nazemi

doi:10.5267/j.msl.2014.4.005

Abstract

Article history: Received December 28, 2013 Accepted 10 April 2014 Available online April 14 2014 This paper determines and ranks financial risk factors in Iranian corporations, using analytical hierarchy process (AHP). The present research includes one main question and four subquestions. Its universe population includes managers, production and financial personnel of great corporations activating in Tehran Stock Exchange, who were selected to explain importance and weight of economic risks indices. The source of great corporations recognition is the Companies Registration Organization in Tehran Province, and according to this, there are 120 corporations. The results have indicated that financing risk maintains the highest priority followed by credit risk, liquidity risk, inflation risk and exchange risk. In terms of different risks associated with financing risk, risk of profit per share has been the number one priority followed by the risk of divisional profit per share, the risk of recessionary or boom and the risk of increasing partial pay profit rate. In terms of credit risk, the risk of loan has been number one priority followed by the risk of inability of loan payment and interest payment. Liquidity risk is another risk factor where demand has been the most important factor followed by rules and regulations and inflation risk. In terms of inflation, producers price risk has been the most important factor followed by consumer price risk, gross domestic product and producers price risk. Finally, in terms of different factors influencing exchange risk, export related issues are considered as the most important factors. © 2014 Growing Science Ltd. All rights reserved.

Highlights

One of the primary concerns on business development is to reduce any possible risk factors on big firms whose shares are listed on stock exchange (Short, 1984; Christoffersen & Gonçalves, 2004)
The results have indicated that financing risk maintains the highest priority followed by credit risk, liquidity risk, inflation risk and exchange risk
In terms of different risks associated with financing risk, risk of profit per share has been the number one priority followed by the risk of divisional profit per share, the risk of recessionary or boom and the risk of increasing partial pay profit rate

Summary

Introduction

One of the primary concerns on business development is to reduce any possible risk factors on big firms whose shares are listed on stock exchange (Short, 1984; Christoffersen & Gonçalves, 2004). Pongsakdi et al (2006), for instance, studied the financial risk aspects associated with the purchase of crude oil. They determined how to purchase and decide on the production level of various products given forecasts of demands and they examined their model using data from the Refinery owned by the Bangchak Petroleum Public Company Limited, Thailand. Using a questionnaire in four groups including propensity, attitude, capacity, and knowledge, they surveyed over 180 individuals their responses were analyzed using the Slacks-based measure type of DEA efficiency model. They reported that the multidimensionality of risk must be taken into account for complete assessment of risk tolerance. The tool can serve as a “risk calculator” for an appropriate and defensible method to reach legal compliance requirements, known as the “Know Your Client” rule, that exist for Canadian financial institutions and their advisors

The proposed method

What is the rank of each risk factors Rank based on AHP results?

Findings

Conclusion