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Does Interindustry and Intraindustry Information Help Predict Financial Distress?

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  • Hsiou‐Wei William Lin
  • Ruei‐Shian Wu
  • Huai‐Chun Lo

Abstract

This study investigates whether and how the accounting ratios of peer firms within the same industry (the industry peers) or firms within the industry of their customers (the downstream peers) help improve the predictability of sample firm financial distress. We document that the Z‐score factors of the companies with high correlation in stock returns help predict financial distress. The results show that accounting‐based ratios of the industry peers and the downstream peers enhance the accuracy of early warnings of financial distress, especially when prior returns of peer firms are highly correlated with the sample firm.

Suggested Citation

  • Hsiou‐Wei William Lin & Ruei‐Shian Wu & Huai‐Chun Lo, 2019. "Does Interindustry and Intraindustry Information Help Predict Financial Distress?," International Review of Finance, International Review of Finance Ltd., vol. 19(3), pages 665-679, September.
    • Handle: RePEc:bla:irvfin:v:19:y:2019:i:3:p:665-679
    DOI: 10.1111/irfi.12176
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