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Predicting above-median and below-median growth rates

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  • Alexander Hölzl
  • Sebastian Lobe

Abstract

Multiannual periods of consecutive above-median or below-median growth rates in operating performance, called runs, have a substantial influence on firm valuations. For estimating the probability of an above-median or below-median run and utilizing information efficiently, we employ a stepwise regression to automatically identify the parsimonious indicator-specific set of economically and empirically meaningful variables. Our novel approach uses logit models to distinguish firms that will persistently grow above or below the median over a period of up to 6 years. The predictive power for sales growth rates is highest to discriminate between above-median and below-median growth rates, while the future behaviour of operating income and net income growth rates can partially be explained for below-median growth rates. Copyright Springer-Verlag Berlin Heidelberg 2016

Suggested Citation

  • Alexander Hölzl & Sebastian Lobe, 2016. "Predicting above-median and below-median growth rates," Review of Managerial Science, Springer, vol. 10(1), pages 105-133, January.
    • Handle: RePEc:spr:rvmgts:v:10:y:2016:i:1:p:105-133
    DOI: 10.1007/s11846-014-0145-5
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    More about this item

    Keywords

    Operating performance growth rates; Above-median; Below-median; Runs; Prediction; D92; G17; G32;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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