An objectıve criteria proposal for the comparison of MCDM and weighting methods in financial performance measurement: An application in Borsa Istanbul

Abstract

Financial performance research with multi-criteria decision making (MCDM) methods, is a common subject of study not only for researchers in the finance literature but also in the applied sciences. Financial performance manifests itself in an internal universe that a firm can directly control, while the share return of the same firm is shaped synchronically in an external universe that cannot be controlled directly. On the other hand, preferring the most suitable MCDM and weighting method to use in measuring financial performance is often regarded as a source of uncertainty. In this study, the share price is used as an external proxy and a tool for comparing MCDM methods, completely different from the previously proposed approaches based on the superiority of internal features. This study was conducted on 131 manufacturing companies in Borsa Istanbul, covering entire 20-quarter period between 2014 and 2018. The experimental findings of the study provide valid solutions for the MCDM and weighting selection problem, that can be proposed as a practical and indirect solution. The results show that preference ranking organization method for enrichment of evaluations (PROMETHEE) method used with hybrid weighting technique produced by far the best performance rankings in 19 out of 20 quarterly periods when compared to the technique for order preference by similarity to ideal solution (TOPSIS) and weighted sum approach (WSA).