Theoretical and Empirical Research regarding the Performance of Financial Investment Companies based on Accounting Information

Resumen

This thesis examines the performance of financial investment companies. The purpose and contribution of this thesis to the academic research is to provide a more comprehensive and coherent view of risks valuation. Specifically, we explore the impact that risks arising from financial instruments has on financial investment companies’ performance using three specific models. We undertake this research through both theoretical exploration and empirical analysis. On the theoretical part, we display the concerning matters of the international framework regarding financial instruments and the changed in the last thirty years. We present in the theoretical front the concepts regarding financial instruments, risks arising from them and performance of financial investment companies. We show the evolution of the standard international framework, how much it changed and which were the most important questions regarding recognition and evaluation of financial instruments. On the empirical research, we present three models that have as a dependable variable the Tobin’s Q ratio. The sample of our study includes 162 financial investment companies from Europe. We measure each risk arising from financial instruments considers both macroeconomic conditions and firms fundamentals. Using this measure, we analyse the impact that risks arising from financial instruments can have on an investment company. We test the hypotheses by using the fixed effects regression. The most notable finding is that the more the performance increase, the investment risk decrease and a financial investment company is not so exposed to this type of risk. On the other hand, we find that the performance of a financial investment company is directly proportional to the liquidity risk and market risk. In the second part of our empirical investigation, we present additional evidence to give more robustness to the results obtained from the implementation of the theory that the risks arising from financial instruments have an impact on financial investment companies’ performance. To corroborate that our findings obtained are robust, we have produced two specifications of our baseline model. First of all, because our models can have problems with the estimations carried out, it is possible to see the presence of heteroskedasticity in our explanatory variables. In the second part of the chapter, we are changing the definition of our depended variable to see if the independent variables are acting as we are expecting. We find that even when we change the specification of the models, the variables are moving as we were expecting and we can confirm our hypotheses.