Page 257 - Contributed Paper Session (CPS) - Volume 3

CPS2011 Dominique H. et al.
conservative and bold financing strategies are adopted. It is interesting to note
that the companies within a cluster present a heterogeneous mix of business
content and industry. This means that the temporal dynamics of companies’
financial performance seems not determined by traditional classification
indicators, such as by industry or line of business, and that these traditional
classification indicators are insufficient to underpin an efficient comparison
among companies.

Figure 4: Debt ratio constructs time series in each cluster

In terms of temporal dynamics, it seems that the majority of companies
seek stable financial leverage in the long-run (see Figure 4); the fluctuation in
the short run may reflect the inefficiency in the process of debt issuance.
However, we identify two clusters (cluster 2 and cluster 13) that act differently.
Cluster 2 shows a strong upward momentum at the beginning and end stages,
while flat in the middle stage. Cluster 13 shows a downward trend during the
first half and gradually becomes flat during the second half. Further research
regarding the particular companies in these two clusters indicates that these
unique behaviours of financial leverage signal important changes within the
firms. For example, the excessive leverage showed in cluster 2 is likely
associated with Home Depot’s aggressive engagement in buybacks in the
stock market; the debt behaviour in cluster 13 may be highly associated with
MHK’s acquisition in 2005 which is financed with debt.
Under the framework of SOM, the comparison can be done by treating
prototypes (Figure 5) as benchmarks.

246 | I S I W S C 2 0 1 9