Advanced Search
MyIDEAS: Login

The predictive ability of relative efficiency for future earnings: an application using data envelopment analysis to Spanish SMEs

Contents:

Author Info

  • Carmelo Reverte
  • Isidoro Guzman
Registered author(s):

    Abstract

    Research on earnings prediction has documented that the transitory component of current earnings undermines its predictive ability about future earnings. The implication of this finding is that a measure that better captures the underlying persistent component of earnings may prove very useful in predicting future earnings when used along with current earnings. Our study, based on a large sample of 1939 Spanish Small and medium Enterprises (SMEs), investigates whether an alternative measure of performance ignored in previous research on earnings forecasting-i.e. relative efficiency-has predictive ability over and above current earnings and book value of equity. Relative efficiency captures the inherent ability of a firm-as compared to other similar firms-to make the most productive use of available resources and is measured using Data Envelopment Analysis (DEA) nonparametric technique. Our findings highlight that our DEA-based efficiency measure has an incremental predictive ability over and above current earnings and book value of equity for predicting future earnings. Moreover, we have further validated the models in a holdout sample and our results evidence the highest forecast accuracy of the model that includes our efficiency measure as an additional predictor to current earnings and book value of equity.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840801964575
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 42 (2010)
    Issue (Month): 21 ()
    Pages: 2751-2757

    as in new window
    Handle: RePEc:taf:applec:v:42:y:2010:i:21:p:2751-2757

    Contact details of provider:
    Web page: http://www.tandfonline.com/RAEC20

    Order Information:
    Web: http://www.tandfonline.com/pricing/journal/RAEC20

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:42:y:2010:i:21:p:2751-2757. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.