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The Cross-Sectional Stability of Financial Ratio Patterns

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  • Johnson, W. Bruce

Abstract

The properties and characteristics of financial ratios have received considerable attention in recent years with interest primarily focused on determining the predictive ability of financial ratios and related financial data. Principal areas of investigation have included the prediction of corporate bond ratings [13, 20, 23, 34], and the anticipation of financial impairment [1, 2, 3, 5, 6, 7, 18, 19, 29, 32, 33, 35]. Related studies have examined the characteristics of merged firms [25, 28], the differencesin financial ratio averages among industries [9, 10], whether firms seek to adjust their financial ratios toward industry averages [15], the relationship between accounting-determined and market-determined risk measures [4, 8, 24], and the influence of financial ratios on analysts' judgments about impending bankruptcy [14, 17]. The general conclusion to emerge from these various research efforts is that a number of financial ratios have predictive and descriptive utility when properly employed.

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  • Johnson, W. Bruce, 1979. "The Cross-Sectional Stability of Financial Ratio Patterns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(5), pages 1035-1048, December.
    • Handle: RePEc:cup:jfinqa:v:14:y:1979:i:05:p:1035-1048_00
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    Cited by:

    1. John W. Pacey & Toan M. Pham, 1990. "The Predictiveness of Bankruptcy Models: Methodological Problems and Evidence," Australian Journal of Management, Australian School of Business, vol. 15(2), pages 315-337, December.
    2. Jayant Hooda & Vijay Singh & Amit Dangi, 2021. "Discriminant model of revenue prediction: a study of selected top performing companies in India," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 20(2), pages 185-193, April.
    3. Ali DERAN & Omer ISKENDEROGLU & Incilay ERDURU, 2014. "Regional Differences and Financial Ratios: A Comparative Approach on Companies of ISE City Indexes," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 946-955.
    4. Ben Chin-Fook Yap & Zulkifflee Mohamad & K-Rine Chong, 2013. "A Longitudinal and Cross-Industry Study on the Stability of Financial Ratios of Malaysian Companies," Accounting and Finance Research, Sciedu Press, vol. 2(3), pages 1-45, August.
    5. Antonio Pelaez-Verdet & Pilar Loscertales-Sanchez, 2021. "Key Ratios for Long-Term Prediction of Hotel Financial Distress and Corporate Default: Survival Analysis for an Economic Stagnation," Sustainability, MDPI, vol. 13(3), pages 1-17, January.
    6. William S. Hopwood & Thomas F. Schaefer, 1988. "Incremental information content of earnings†and nonearnings†based financial ratios," Contemporary Accounting Research, John Wiley & Sons, vol. 5(1), pages 318-342, September.

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