Financial Performance in the Public Administration Sector: Comparison Between Hungary and Romania

Abstract

We investigate the long-run relationship between profitability, liquidity and capitalization for companies acting in the public administration and defense sector from Hungary and Romania, using firm-level data for the period 2006–2015. Our panel cointegration analysis proves the existence of a long-run relationship between the analyzed variables. The DOLS results posit in the favor of a trade-off between liquidity and profitability for Hungary, but not for Romania. At the same time, the capitalization ratio negatively impacts the profitability ratio in Romania. These results are validated by a series of robustness tests, considering different profitability indicators, and partially validated by the FMOLS analysis. Our findings have noteworthy implications for the financial management of companies acting in the field of public administration and defense, showing different financial management strategies for the companies located in the two analyzed countries.