Relationship between financial indicators in the Slovak engineering industry: A panel regression approach

Abstract

The aim of this article is to analyse the relationship between financial indicators in the Slovak engineering industry. We analyse the dependence of the financial indicator return on assets (ROA) on other financial indicators of companies in the engineering industry of the Slovak Republic, namely indicators of indebtedness (ED, FL, TI), liquidity (QR, CR, NWC/A), productivity (VA/PC, VA/S), cost efficiency (PC/S), and activity (TA). The research sample comprises the data of 34 significant Slovak engineering companies for the period 2008-2020. Tests for slope homogeneity demonstrated heterogeneity, which motivated the use of a partially heterogeneous framework for short panel data models – a regression clustering approach. This method divides the entities into clusters so that the column coefficients are homogeneous inside the clusters. The 4-cluster model appeared to be the most favorable model for the studied group of companies. The conducted procedures can be extended to companies from other economic sectors. Understanding of the relationship between ROA and other financial indicators allows for more effective business management.