Academic journal article Journal of Economics, Finance and Administrative Science

Applying Chaid to Identify the Accounting-Financial Characteristics of the Most Profitable Real Estate Companies in Spain/Aplicacion del Chaid Para Identificar Las Caracteristicas Economico-Financieras De Las Empresas Inmobiliarias Mas Rentables En Espana

Academic journal article Journal of Economics, Finance and Administrative Science

Applying Chaid to Identify the Accounting-Financial Characteristics of the Most Profitable Real Estate Companies in Spain/Aplicacion del Chaid Para Identificar Las Caracteristicas Economico-Financieras De Las Empresas Inmobiliarias Mas Rentables En Espana

Article excerpt

INTRODUCTION

In the current marketplace, which is characterized by the financial crisis in the developed world, the consequences in Spain increased due to the crisis in the housing sector that had been an important contributor to Spain's economic growth. However, at present, it is yielding lower rates of profitability. The GDP in Spain is expected to contract by 3.3% in 2009 and 0.6% in 2010, down from 1.2% growth in 2008. A modest recovery will only begin during the second half of 2010, although there is a possibility that this will be delayed. This economic contraction has an important influence in the housing sector, illustrated for example with the last information published by the Bank of Spain that points out that the real estate assets of Spanish banks and saving banks were rising, at the end of March 2009, up to 20.541 million Euros, 2% more than the previous month and 10% more than one year before. The aim of this study is to determine and evaluate, from an empirical perspective, the accounting and financial features that could condition the financial profitability of companies in the real estate sector, identifying the performances that guarantee their permanency.

At a theoretical level, the DuPont Model establishes the relationships between financial profitability and a group of different variables and accounting ratios, such as asset turnover, sales margin or financial leverage. Firstly, the objective of this research is to perform an empirical contrast of this model by analyzing the relationships between the profitability and the accounting ratios, and extracting the most relevant explanatory variables of the profitability. Secondly, the paper aims at quantifying those relationships and their explanatory variables with the purpose of obtaining the patterns or profiles--that is to say, the combinations of economic-accounting features--of the most profitable companies in the housing sector.

The sample includes 5,484 Spanish real estate companies. Return on Equity (ROE) is used to measure the profitability as dependent variable. As explanatory variables the study uses various independent variables related to activity, turnover, financial equilibrium and investment structure, solvency and liquidity, most of them defined in the DuPont Model.

This work begins with a review of the main empirical studies, which have analyzed the relationships between financial profitability and different accounting ratios. Next, we outline our methodological proposal to achieve the aims. To that effect, we illustrate the DuPont Model that is used as a reference, describing the sample and the variables, and finally explaining the analysis technique that is applied. Subsequently, the main results of the analysis are exhibited: in the first place by means of a descriptive and exploratory analysis, and later from an explanatory point of view. Finally, the paper illustrates the most relevant discussions on this research.

REVIEW OF EMPIRICAL EVIDENCE

The importance of the profitability as an essential factor for the long-term survival of the companies has motivated the appearance of a high number of empirical works to evaluate the profitability of the Spanish companies, particularly real estate firms, fundamentally from a descriptive point of view. The review of the empiric literature shows the existence of two research subjects: one with a descriptive character, the other with an explanatory nature.

In papers of research subjects of descriptive character, we can distinguish two groups: (a) those referring to the whole of the Spanish firms, and (b) those analyzing particular branches of the Spanish economy or related to a specific geographic area. Within the first group, the following works stand up: Maroto (1993; 1998), Rodriguez (1989), Bueno et al. (1990), Huergo (1992), Lucas & Gonzalez (1993), Sanchez (1994), and Gonzalez & Correa (1999). Also, at an institutional level, several organizations issue reports, such as the Research Service of the Mayor Council of Chambers of Commerce of Spain. …

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