Financial contagion, financial performance and the steel industry

What is it about?

The article that served as the source and inspiration for the information presented on this page was originally published under the title “Finansal bulaşma etkisi altında işletme performansı ve finansal performans ölçümü: Bir demir çelik işletmesinde uygulama” in “Süleyman Demirel Üniversitesi Sosyal Bilimler Enstitüsü Dergisi”, dated 2024, Volume 49(1), pp. 1-44. The content below offers informative and explanatory insights that include personal perspectives on the topic. You are welcome to share your questions, comments and suggestions via the contact channels and academic/social platforms listed in the menus on the right. The author(s) expect proper citation of their original work as a recognition of their scholarly contribution published in peer-reviewed scientific journals. Therefore, please refrain from citing this page and instead cite the original article. Please note that this text serves primarily as an introduction and expression of viewpoints. Thank you for your understanding. The iron and steel sector, widely regarded as a driving force in countries’ industrialization processes, serves as a key indicator of economic development. This sector is deeply interconnected with concepts such as internationalization in trade, market economy, and globalization. Such close relationships make the sector more sensitive to price fluctuations, economic shocks, and financial crises. Within national economies, the financial and commercial advantages held by joint-stock companies and the reasons behind these advantages are important subjects for investigation. Therefore, in this study, we examine an iron and steel enterprise, known as a factory-establishing company, during the financial contagion period from 2018 to 2022. We evaluate the company’s performance from two perspectives: financial performance and operational performance. To conduct this analysis, we apply multi-criteria decision-making techniques, specifically the MEREC and COBRA methods. Both approaches indicate that the company achieved its best performance in 2021. Considering the close relationship and parallelism between operational and financial performance concepts, the results further support this connection. Ultimately, our findings suggest that the company was able to maintain its operational and economic efficiency despite the effects of financial contagion.

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Photo by engin akyurt on Unsplash

Photo by engin akyurt on Unsplash

Why is it important?

We recognize the iron and steel sector as a heavy industry and manufacturing backbone with strong forward and backward linkages. It starts its activities by establishing factories and diversifies iron and steel products using various production methods. Additionally, it transforms or reprocesses iron and steel products, either marketed as final goods or collected as scrap, into raw materials. The iron and steel sector plays a locomotive role for national industries, especially under the intensely globalized conditions of international trade, where competition is fierce and capturing economic opportunities is challenging. Therefore, we believe that countries need to focus not only on exports but also on the efficient use of financial resources within this sector. By producing intermediate and semi-finished products, the iron and steel industry supports the continuity of other industries such as automotive, transportation, construction, and shipbuilding. These downstream industries are often classified among advanced sectors, highlighting iron and steel as a complementary and supportive industry. Money, fundamentally a measure of value and medium of circulation, originates from commodity production. In the context of the iron and steel sector, the appreciation of industrial capital is accompanied by specific financial and operational risks, particularly in large-scale companies. Despite regional price differences, lack of price transparency, and insufficient mechanisms for protecting against price fluctuations, the high-volume trade nature of the sector makes it the first to absorb economic shocks, crises, and financial contagion effects, subsequently spreading negative impacts to other sectors. This reality places a high level of responsibility on the general and financial management units of large enterprises regarding risk management and decision-making. Traditional managerial approaches, relying mainly on intuition and personal judgment, have proven inadequate in forecasting and decision-making processes. This has increased the importance of new methods and multi-criteria decision-making techniques in improving public and private sector management. Price volatility and rising input costs in iron and steel production are not always immediately reflected in product prices, impacting profit margins, order commitments, capital management, and future planning. Given these challenges, assessing performance during financial contagion in the iron and steel sector is essential. We also found that studies jointly evaluating operational and financial performance are limited in the literature. Hence, by integrating both performance dimensions, our study contributes to filling this gap and advancing the understanding of financial contagion effects in this vital sector.

Perspectives