Abstract
This paper reports the development and estimation of a Vector Autoregressive (VAR) econometric model representing the financial statements of a firm. Although the model can be generalized to represent the financial statements of any firm, this work was carried out as a case study, where the chosen company is Petrobras S/A. The methodology comprises correlation analysis, unit root tests, cointegration analysis, VAR modeling, Granger causality tests, in addition to impulse response and variance decomposition methods. Besides the endogenous financial statement variables, an exogenous variable vector was utilized including the Brazilian GDP, domestic and foreign interest rates, the international oil price, the exchange rate, and country risk. The model’s final version is a Vector Error Correction Model (VECM), which takes into account the cointegrating relationships among the endogenous variables. After estimation and validation, the model is used to forecast the firm’s financial statements. Estimates for the exogenous variables and dividend forecasts were also used to estimate the firm’s market value. The results are apparently robust and might contribute to the field of financial planning and forecasting.
Highlights
Various studies have been documented in the literature seeking to model the operational and the financial activity of a firm (MUMFORD, 1996; GEROSKI, 1998; PEREZ-QUIROS; TIMMERMANN, 2000; OGAWA, 2002; ERAKER, 2005)
There are few studies, besides those of Saltzman (1967) and De Medeiros (2004, 2005) that are geared towards the econometric modeling of a company’s operating and financial activity based on its financial statements which take into consideration the influence of exogenous macroeconomic variables
Such analyses are: (i) stationarity analysis; (ii) correlation analysis; and (iii) cointegration analysis. Such analyses respectively help deciding whether (i) the model should be specified with variables that are on levels or in differences, (ii) there is a risk of multicollinearity and (iii) the appropriate model will be a Vector Autoregressive (VAR) in its original form or a VAR in a Vector Error Correction Model - VECM form in the case that there is at least one cointegrated relationship
Summary
Various studies have been documented in the literature seeking to model the operational and the financial activity of a firm (MUMFORD, 1996; GEROSKI, 1998; PEREZ-QUIROS; TIMMERMANN, 2000; OGAWA, 2002; ERAKER, 2005). There are few studies, besides those of Saltzman (1967) and De Medeiros (2004, 2005) that are geared towards the econometric modeling of a company’s operating and financial activity based on its financial statements which take into consideration the influence of exogenous macroeconomic variables Both Saltzman (1967) and De Medeiros (2004, 2005) developed financial statement forecasting models utilizing simultaneous structural equation systems. This paper details the development of an econometric model representative of the operating and the financial activity of a firm over time It is based on the firm’s financial statements and takes into consideration the influence of exogenous economic variables. During the past four decades, Petrobras has become one of the 15 largest petroleum companies in the world
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