Ranking of firms by performance using I-distance method

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The objective of this article is to rank firms by their financial performance using statistical I-distance method, which has the ability to determine both ranking and important factors. For this purpose, the method was first applied to 110 Turkish industrial firms without any sectorial separation and then to 7 different sectors, and various findings about firms, sectors and variables were obtained. The I-distance method is used to get rid of the high correlation between variables during the analysis. The reason for choosing the I-distance method is that it allows you to sort the variables by importance and eliminate insignificant variables, as well as take into account correlations between variables. The authors believe that the method is superior to other alternative methods thanks to these qualities. Through a number of analyses, it was possible to see positions of firms both within the whole sample and their own sectors. Furthermore, this method provided valuable information on which factors were important in assessing firms’ financial performance. It has been observed in the analyses that the most effective factors in ranking firms and separating them from each other were profitability ratios, and the fact that liquidity and financial leverage ratios are not effective at all. When examined from a sectoral perspective, the nonmetal mining sector and the chemical, petroleum and plastic sectors seem to be better than other sectors in the performance rankings.

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    • Table 1. Financial ratios used in the study
    • Table 2. The results of the I2-distance method first calculation
    • Table 3. The correlation between the I2-distance and the initial indicators
    • Table 4. The results of the I2-distance method final calculation
    • Table 5. The correlation between the I2-distance and the final variables
    • Table 6. The correlation between I2-distance and variables in respect of sectors
    • Table 7. Weights of the variables by ENTROPY
    • Table 8. The firm ranking by TOPSIS
    • Table 9. The firm ranking by the VIKOR
    • Table 10. Serial correlation coefficient between ranking methods
    • Table A1. The firm list according to sectors