Research on the Relationships Among Bulgarian Banks’ Financial Statement Elements as a Basis for a Thorough Analysis of Their Activities
Research on the Relationships Among Bulgarian Banks’ Financial Statement Elements as a Basis for a Thorough Analysis of Their Activities

Author(s): Ventsislav Vechev , Diana Papradanova
Subject(s): Economy, National Economy, Financial Markets
Published by: Университет за национално и световно стопанство (УНСС)
Keywords: banks; financial statements; regression analysis
Summary/Abstract: Banks’ financial statements are the main source of information for a wide range of users (investors, regulatory authorities, etc.). A qualitative analysis of the information contained in the elements of financial statements is a prerequisite for making justified and constructive decisions. This paper presents a research that aims to assess the significance of information relationships among the elements of the financial statements of banks as a starting point for analysing their financial position. The research thesis is that the relationships and dependencies among financial statement elements should be used as a basis for structuring the indicators and models for analysis of banking activity in order to obtain qualitative analytical information that would help the users of these financial statements (including bank managers and supervisory bodies) make informed economic decisions. To prove this thesis, the following hypothesis was formulated and empirically tested: financial statement elements reflect different aspects of the economic processes taking place in banks and therefore there is an interdependence among the positions (items) of the financial statements. The correlation of certain financial statement positions was identified and measured by means of regression and correlation analyses of the data from the financial statements of Bulgarian banks published on the official website of the Bulgarian National Bank. The relationships were determined using a univariate linear regression analysis while the covariance was measured using the Pearson correlation coefficient. The research covers twenty-five banking institutions (including branches of foreign banks) operating on the territory of our country. The results of the research determine the relationships and correlations among certain positions of the financial statements of these banks and empirically confirm the formulated hypothesis, which in turn corroborates the main research thesis.

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