Industry Effects on Firm and Segment Profitability Forecasting: Do Aggregation and Diversity Matter?
AbstractAbstract. 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 39190.
Date of creation: 01 Jun 2012
Date of revision:
Segment profitability; Earnings predictability; Earnings persistence; Aggregation; Diversity; Industry membership;
Find related papers by JEL classification:
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- G00 - Financial Economics - - General - - - General
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-13 (All new papers)
- NEP-BEC-2012-06-13 (Business Economics)
- NEP-FOR-2012-06-13 (Forecasting)
- NEP-IND-2012-06-13 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Juan Carlos Bou & Albert Satorra, 2003. "The persistence of abnormal returns at industry and firm levels," Economics Working Papers 729, Department of Economics and Business, Universitat Pompeu Fabra.
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