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Disaggregated earnings and prediction of future profitability: evidence from industrial groups in Japan

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  • Ahsan Habib

Abstract

Purpose - This paper seeks to examine the predictive ability of disaggregated earnings in forecasting future profitability conditional onkeiretsuaffiliation in the context of Japan. Design/methodology/approach - Industry‐adjusted future profitability measure is regressed on current profitability measures and on interaction terms ofkeiretsuaffiliation and profitability measures. Out‐of‐sample forecasting test is conducted by regressing future profitability on current profitability measures forkeiretsu‐affiliated and independent firms. Findings - Disaggregated earnings improve out‐of‐sampling forecasting for firms not affiliated withkeiretsunetworks. For thekeiretsu‐affiliated firms industry adjustments actually diminish the out‐of‐sample forecasting accuracy. Research limitations/implications - The boundary betweenkeiretsu‐affiliated and independent firms is not so obvious. Originality/value - Examining industry competitiveness in Japan using accounting information is a significant contribution to the literature.

Suggested Citation

  • Ahsan Habib, 2006. "Disaggregated earnings and prediction of future profitability: evidence from industrial groups in Japan," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 5(4), pages 355-369, October.
    • Handle: RePEc:eme:rafpps:14757700610712435
    DOI: 10.1108/14757700610712435
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