Determinants of Return on Assets in Romania: a Principal Component Analysis

  • Sorana VATAVU <p>West University of Timisoara</p>
Keywords: corporate performance, capital structure, factor analysis


This article aims to understand the relationship between capital structure and financial performance in 126 Romanian companies listed on the Bucharest Stock Exchange, over a period of ten-years (2003-2012). Regression results indicate that Romanian companies register higher returns when they operate with a low proportion of borrowed funds. Tangibility and business risk have a negative impact on return on assets, but the level of taxation has a positive effect on return on assets, showing that companies manage their assets more efficiently during times of high taxes. Performance is sustained by significant sales turnover, but it is not significantly influenced by high levels of liquidity. Periods of unstable economic conditions, reflected by high inflation rates and the current financial crisis have a strong negative impact on corporate performance. Based on these regressions and the method of iterated principal component factors three factors are considered: the first one incorporates debt and size, as an indicator of consumption, the second one integrates the influence of tangibility and liquidity, marking the investment potential, and the third one is an indicator of assessed risk, integrating the volatility of earnings with the level of taxation. The return on assets is significantly influenced by these three factors in all regression methods used. The consumption factor has a negative impact on performance, while the investment and risk variables positively influence the return on assets.

Author Biography

Sorana VATAVU, <p>West University of Timisoara</p>

Faculty of Economics and Business Administration,

The East-European Center for Research in Economics and Business (ECREB)


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How to Cite
VATAVU, S. (2015). Determinants of Return on Assets in Romania: a Principal Component Analysis. Timisoara Journal of Economics and Business, 8(1s), 32-46. Retrieved from