Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model
In this paper, we propose a multi-criteria decision making (MCDM) model by integrating the entropy–DEMATEL with TOPSIS model to analyze the causal relationship of financial ratios towards the financial performance of the companies. The proposed model is illustrated using the financial data of the co...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2022-07-01
|
| Series: | Entropy |
| Subjects: | |
| Online Access: | https://www.mdpi.com/1099-4300/24/8/1056 |
| _version_ | 1827628255523373056 |
|---|---|
| author | Kah Fai Liew Weng Siew Lam Weng Hoe Lam |
| author_facet | Kah Fai Liew Weng Siew Lam Weng Hoe Lam |
| author_sort | Kah Fai Liew |
| collection | DOAJ |
| description | In this paper, we propose a multi-criteria decision making (MCDM) model by integrating the entropy–DEMATEL with TOPSIS model to analyze the causal relationship of financial ratios towards the financial performance of the companies. The proposed model is illustrated using the financial data of the companies of Dow Jones Industrial Average (DJIA). The financial network analysis using entropy–DEMATEL shows that the financial ratios such as debt to equity ratio (DER) and return on equity (ROE) are classified into the cause criteria group, whereas current ratio (CR), earnings per share (EPS), return on asset (ROA) and debt to assets ratio (DAR) are categorized into the effect criteria group. The top three most influential financial ratios are ROE, CR and DER. The significance of this paper is to determine the causal relationship of financial network towards the financial performance of the companies with the proposed entropy–DEMATEL–TOPSIS model. The ranking identification of the companies in this study is beneficial to the investors to select the companies with good performance in portfolio investment. The proposed model has been applied and validated in the portfolio investment using a mean-variance model based on the selection of companies with good performance. The results show that the proposed model is able to generate higher mean return than the benchmark DJIA index at minimum risk. However, short sale is not allowed for the applicability of the proposed model in portfolio investment. |
| first_indexed | 2024-03-09T13:29:08Z |
| format | Article |
| id | doaj.art-51128a8f412a481b80ec452220045c44 |
| institution | Directory Open Access Journal |
| issn | 1099-4300 |
| language | English |
| last_indexed | 2024-03-09T13:29:08Z |
| publishDate | 2022-07-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Entropy |
| spelling | doaj.art-51128a8f412a481b80ec452220045c442023-11-30T21:19:49ZengMDPI AGEntropy1099-43002022-07-01248105610.3390/e24081056Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS ModelKah Fai Liew0Weng Siew Lam1Weng Hoe Lam2Department of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, MalaysiaDepartment of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, MalaysiaDepartment of Physical and Mathematical Science, Faculty of Science, Universiti Tunku Abdul Rahman, Kampar Campus, Jalan Universiti, Bandar Barat, Kampar 31900, Perak, MalaysiaIn this paper, we propose a multi-criteria decision making (MCDM) model by integrating the entropy–DEMATEL with TOPSIS model to analyze the causal relationship of financial ratios towards the financial performance of the companies. The proposed model is illustrated using the financial data of the companies of Dow Jones Industrial Average (DJIA). The financial network analysis using entropy–DEMATEL shows that the financial ratios such as debt to equity ratio (DER) and return on equity (ROE) are classified into the cause criteria group, whereas current ratio (CR), earnings per share (EPS), return on asset (ROA) and debt to assets ratio (DAR) are categorized into the effect criteria group. The top three most influential financial ratios are ROE, CR and DER. The significance of this paper is to determine the causal relationship of financial network towards the financial performance of the companies with the proposed entropy–DEMATEL–TOPSIS model. The ranking identification of the companies in this study is beneficial to the investors to select the companies with good performance in portfolio investment. The proposed model has been applied and validated in the portfolio investment using a mean-variance model based on the selection of companies with good performance. The results show that the proposed model is able to generate higher mean return than the benchmark DJIA index at minimum risk. However, short sale is not allowed for the applicability of the proposed model in portfolio investment.https://www.mdpi.com/1099-4300/24/8/1056causal relationshipentropyTOPSISDEMATELmulti-criteria decision makingfinancial ratio |
| spellingShingle | Kah Fai Liew Weng Siew Lam Weng Hoe Lam Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model Entropy causal relationship entropy TOPSIS DEMATEL multi-criteria decision making financial ratio |
| title | Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model |
| title_full | Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model |
| title_fullStr | Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model |
| title_full_unstemmed | Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model |
| title_short | Financial Network Analysis on the Performance of Companies Using Integrated Entropy–DEMATEL–TOPSIS Model |
| title_sort | financial network analysis on the performance of companies using integrated entropy dematel topsis model |
| topic | causal relationship entropy TOPSIS DEMATEL multi-criteria decision making financial ratio |
| url | https://www.mdpi.com/1099-4300/24/8/1056 |
| work_keys_str_mv | AT kahfailiew financialnetworkanalysisontheperformanceofcompaniesusingintegratedentropydemateltopsismodel AT wengsiewlam financialnetworkanalysisontheperformanceofcompaniesusingintegratedentropydemateltopsismodel AT wenghoelam financialnetworkanalysisontheperformanceofcompaniesusingintegratedentropydemateltopsismodel |