Scoring Financial Health of Business Sector: A MIMIC Analysis Approach

Abstract

The objective of the study is to measure business sector’s financial health capability as an important functionality. Business sector financial worth aggregates to national financial health, which is another function of businesses other than production. Motivating firm investment can have far-reaching effects beyond production. Multiple Indicators and Multiple Causes (MIMIC) model is used to measure financial health. The deployment of 99 country panel data between 1980-2021 used firm-level indicators like working capital, management efficiency, liquidity, and leverage and economic level consequences like inflation, investments, growth, stock market, and employment. The financial value of businesses leads to an increase in investments, growth, stock market, and employment. And it depends on working capital, and leverage of the firms. In order to boost the performance of business sector in terms of its financial health capability government must provide support in working capital, management efficiency and profitability of businesses.