Independent characteristics of the firm: A factor-analytic approach using Belgian accounting and advertising data

Financial ratios are used essentially to control for firm size and industry effects. A standard financial statement contains enough data to generate a large number of such ratios. As yet, no sound theory leading to an a priori selection of ratios for inclusion in empirical research has been developed. In the present study, the authors try to determine by means of principal components analysis which factors can be identified when using Belgian data (1981 and 1983). Besides a number of classical ratios, some other, less frequently used, ratios are included, viz. advertising intensity ratios, media mix indicators, value added ratios and size variables. The stability of the factor result is also examined.