Hostname: page-component-7dd5485656-s6l46 Total loading time: 0 Render date: 2025-10-30T02:16:30.670Z Has data issue: false hasContentIssue false
  • English
  • Français

The Cross-Sectional Stability of Financial Ratio Patterns

Published online by Cambridge University Press:  06 April 2009

W. Bruce Johnson
Get access Rights & Permissions [Opens in a new window]

Extract

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.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 5 , December 1979 , pp. 1035 - 1048
Copyright
Copyright © School of Business Administration, University of Washington 1979

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

REFERENCES

[1]Altman, E. J. “Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy.” Journal of Finance1, Vol. 23 (09 1968), pp. 589–609.CrossRefGoogle Scholar
[2]Beaver, W. “Financial Ratios as Predictors of Failure.” Empirical Research in Accounting: Selected Studies, 1966, Supplement to Journal of Accounting Research, pp. 71–111.CrossRefGoogle Scholar
[3]Beaver, W. “Alternative Accounting Measures as Predictors of Failure.” Accounting Review (01 1968), pp. 113–122.Google Scholar
[4]Beaver, W.; Kettler, P.; and Scholes, M.. “The Association Between Market Determined and Accounting Determined Risk Measures.” Accounting Review (10 1970), pp. 654–682.Google Scholar
[5]Blum, M. “Failing Company Discriminant Analysis.” Journal of Accounting Research (Spring 1974), pp. 1–25.CrossRefGoogle Scholar
[6]Deakin, E. B. “A Discriminant Analysis of Predictors of Business Failure.” Journal of Accounting Research (Spring 1972), pp. 167–179.CrossRefGoogle Scholar
[7]Edmister, R. O. “An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction.” Journal of Financial and Quantitative Analysis (03 1972), pp. 1477–1493.CrossRefGoogle Scholar
[8]Gonedes, N. J. “Evidence on the Information Content of Accounting Numbers: Accounting-Based and Market-Based Estimates of Systematic Risk.” Journal of Financial and Quantitative Analysis (06 1973), pp. 407–443.CrossRefGoogle Scholar
[9]Gupta, M. C. “The Effect of Size, Growth, and Industry on the Financial Structure of Manufacturing Companies.” Journal of Finance (06 1969), pp. 517–529.CrossRefGoogle Scholar
[10]Gupta, M. C. and Huefner, R. J.. “A Cluster Analysis Study of Financial Ratios and Industry Characteristics.” Journal of Accounting Research (Spring 1972), pp. 77–95.CrossRefGoogle Scholar
[11]Harman, H. H.Modern Factor Analysis, 2nd ed., Chicago: University of Chicago Press (1967).Google Scholar
[12]Horrigan, J. O. “Some Empirical Bases of Financial Ratio Analysis.” Accounting Review (07 1965), pp. 558–568.Google Scholar
[13]Horrigan, J. O. “The Determination of Long-Term Credit Standing with Financial Ratios.” Empirical Research in Accounting: Selected Studies (1966), Supplement to Journal of Accounting Research, pp. 44–62.Google Scholar
[14]Kennedy, H. A. “A Behavioral Study of the Usefulness of Four Financial Ratios.” Journal of Accounting Research (Spring 1975), pp. 97–116.CrossRefGoogle Scholar
[15]Lev, B. “Industry Averages as Targets for Financial Ratios.” Journal of Accounting Research (Autumn 1969), pp. 290–299.CrossRefGoogle Scholar
[16]Lev, B. “Accounting and Information Theory.” Studies in Accounting Research, No. 2. Evanston, Ill.: American Accounting Association (1969).Google Scholar
[17]Libby, R. “Accounting Ratios and the Prediction of Failure: Some Behavioral Evidence.” Journal of Accounting Research (Spring 1975), pp. 150–161.CrossRefGoogle Scholar
[18]Meyer, P. A., and Pifer, N. W.. “Prediction of Bank Failures.” Journal of Finance (09 1970), pp. 853–868.CrossRefGoogle Scholar
[19]O'Connor, M. C. “On the Usefulness of Financial Ratios to Investors in Common Stock.” Accounting Review (04 1973), pp. 339–352.Google Scholar
[20]Pinches, G. E., and Mingo, K. A.. “A Multivariate Analysis of Industrial Bond Ratings.” Journal of Finance (03 1973), pp. 1–18.CrossRefGoogle Scholar
[21]Pinches, G. E.; Mingo, K. A.; and Caruthers, J. K.. “The Stability of Financial Patterns in Industrial Organizations.” Journal of Finance (06 1973), pp. 389–396.CrossRefGoogle Scholar
[22]Pinches, G. E.; Eubank, A. A.; Mingo, K. A.; and Caruthers, J. K.. “The Hierarchical Classification of Financial Ratios.” Journal of Business Research (10 1975), pp. 295–310.CrossRefGoogle Scholar
[23]Poque, T. F. and Soldofsky, R. M.. “What's in a Bond Rating.” Journal of Financial and Quantitative Analysis (06 1969), pp. 201–228.CrossRefGoogle Scholar
[24]Rosenberg, B., and McKibben, W.. “The Prediction of Systematic and Specific Risk in Common Stock.” Journal of Financial and Quantitative Analysis (03 1973), pp. 317–333.CrossRefGoogle Scholar
[25]Simkowitz, M. A., and Monroe, R. J.. “A Discriminant Analysis Function for Conglomerate Targets.” Sourthern Journal of Business (11 1971), pp. 1–16.Google Scholar
[26]STATJOB, Reference Manual for Univac 1110 Series Computers. Madison, Wisconsin: Academic Computing Center (1976).Google Scholar
[27]Stevens, D. L. “Financial Characteristics of Merged Firms: A Multivariate Analysis.” Journal of Financial and Quantitative Analysis (03 1973), pp. 149–158.CrossRefGoogle Scholar
[28]Stewart, D., and Love, W.. “A General Canonical Correlation Index.” Psychological Bulletin, Vol. 70 (09 1968), pp. 160–163.CrossRefGoogle ScholarPubMed
[29]Tamari, M. “Financial Ratios as a Means of Forecasting Bankruptcy.” Management International Review (1966), pp. 15–21.Google Scholar
[30]Tatsuoka, M. M.Multivariate Analysis. New York: Wiley and Sons (1971).Google Scholar
[31]Theil, H. “On the Use of Information Theory Concepts in the Analysis of Financial Statements.” Management Science (05 1969), pp. 459–480.CrossRefGoogle Scholar
[32]Tinsley, P. A. “Capital Structure, Precautionary Balances, and Valuation of the Firm: The Problem of Financial Risk.” Journal of Financial and Quantitative Analysis (03 1970), pp. 33–62.CrossRefGoogle Scholar
[33]Trieschmann, J. S., and Pinches, G. E.. “A Multivariate Model for Predicting Financially Distressed P-L Insurers.” Journal of Risk and Insurance (09 1973), pp. 327–338.CrossRefGoogle Scholar
[34]West, R. R. “An Alternative Approach to Predicting Corporate Bond Ratings.” Journal of Accounting Research (Spring 1970), pp. 118–127.CrossRefGoogle Scholar
[35]Wilcox, J. W. “A Simple Theory of Financial Ratios as Predictors of Failure.” Journal of Accounting Research (Autumn 1971), pp. 389–395.CrossRefGoogle Scholar