Industry Effects on Firm and Segment Profitability Forecasting: Do Aggregation and Diversity Matter?

Andrew Yim and David Schröder

MPRA Paper from University Library of Munich, Germany

Abstract: Abstract. A recent study shows that industry-specific analysis has no incremental advantage over economy-wide analysis in forecasting firm profitability. This result seems puzzling because some earlier studies have documented the importance of industry effects in explaining firm profitability. We reconcile the apparent inconsistency by showing that industry effects on profitability forecasting exist at the more refined business segment level, but are obscured by aggregated reporting at the firm level. Using segment-level analysis as well as firm-level analysis that also utilizes segment-level information, we provide consistent evidence supporting that industry-specific analysis is more accurate than economy-wide analysis in predicting the profitability of business segments and the profitability of single-segment firms.

Keywords: Segment profitability; Earnings predictability; Earnings persistence; Aggregation; Diversity; Industry membership (search for similar items in EconPapers)
JEL-codes: G00 L25 M21 M41 (search for similar items in EconPapers)
Date: 2012-06-01
New Economics Papers: this item is included in nep-bec, nep-for and nep-ind
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Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/49025/1/MPRA_paper_49025.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:39190

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