Disaggregated earnings and prediction of future profitability: evidence from industrial groups in Japan

Ahsan Habib

Review of Accounting and Finance, 2006, vol. 5, issue 4, 355-369

Abstract: Purpose - This paper seeks to examine the predictive ability of disaggregated earnings in forecasting future profitability conditional onkeiretsuaffiliation in the context of Japan. Design/methodology/approach - Industry‐adjusted future profitability measure is regressed on current profitability measures and on interaction terms ofkeiretsuaffiliation and profitability measures. Out‐of‐sample forecasting test is conducted by regressing future profitability on current profitability measures forkeiretsu‐affiliated and independent firms. Findings - Disaggregated earnings improve out‐of‐sampling forecasting for firms not affiliated withkeiretsunetworks. For thekeiretsu‐affiliated firms industry adjustments actually diminish the out‐of‐sample forecasting accuracy. Research limitations/implications - The boundary betweenkeiretsu‐affiliated and independent firms is not so obvious. Originality/value - Examining industry competitiveness in Japan using accounting information is a significant contribution to the literature.

Keywords: Earnings; Profit; Industrial performance; Japan (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:14757700610712435

DOI: 10.1108/14757700610712435

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