On Modeling Cross Sectional Distributions of Financial Ratios

Lau, Hon‐Shiang; Lau, Amy Hing‐Ling; Gribbin, Donald W.

doi:10.1111/j.1468-5957.1995.tb00375.x

Cited by 19 publications

(12 citation statements)

References 58 publications

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“…Deakin (1976) found that ratios were frequently characterised by distributions with long tails and many ‘outliers’. Other notable work in this area includes that conducted by McLeay (1986 and 1997), Ezzamel, Mar‐Molinero and Beecher (1987), Ezzamel and Mar‐Molinero (1990), Kolari, McInish and Saniga (1989) and Lau, Lau and Gribbin (1995). A common feature of their work is the use of statistical distributions that have unbounded moments.…”

Section: Introductionmentioning

confidence: 99%

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Double Entry Bookkeeping and the Distributional Properties of a Firm's Financial Ratios

Ashton¹,

Dunmore²,

Tippett³

2004

Business Fin & Account

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Our purpose here is to assess whether the innate properties of the double entry bookkeeping system are such that financial ratios, calculated from the balance sheet summary measures implied by it, will be generated by distributional forms with non-convergent moments. Our analysis begins with a brief summary of some important analytical properties of the debt and equity components of the double entry bookkeeping system. We then use these to determine the time series and distributional properties of the debt to equity ratio itself. Our analysis shows that even when the evolution of balance sheet summary measures like debt and equity can be described by 'well behaved' distributional processes, there is a distinct possibility that ratios derived from them will evolve in terms of distributional forms with non-convergent moments. We argue that this has serious implications for parameter estimation as well as the integrity of the regression and/or discriminant procedures which underscore bankruptcy and financial distress prediction models based on financial ratios derived from the double entry bookkeeping system. Copyright Blackwell Publishers Ltd, 2004.

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Section: Introductionmentioning

confidence: 99%

“…A common feature of their work is the use of statistical distributions that have unbounded moments. For example Lau, Lau and Gribbin (1995) suggest the use of a stable Paretian system, which includes the Cauchy distribution as a special case. This last distribution is also used by McLeay (1986) to model the profit growth ratio.…”

Section: Introductionmentioning

confidence: 99%

Double Entry Bookkeeping and the Distributional Properties of a Firm's Financial Ratios

Ashton¹,

Dunmore²,

Tippett³

2004

Business Fin & Account

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“…However, these methods fail to account for the degree of dispersion of ratio values within each industry. Furthermore, studies by Lau, Lau, and Gribbin (1995), and Martikainen, Perttunen, Yli-Olli, and Gunasekaran (1995) attempt to deal with the non-normality issues of financial ratios, but also fail to incorporate industry-specific distributional information.…”

Section: Introductionmentioning

confidence: 99%

Industry Distributional Characteristics of Financial Ratios: An Acquisition Theory Application

Cudd

Duggal

2000

The Financial Review

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This study explores the importance of capturing industry-specific distributional characteristics in analyses based on financial ratios. As a test case, the study replicates Palepu (1986), who employs financial ratios in logit models to investigate the usefulness of six acquisition hypotheses in predicting takeover targets. Without adjustment for industry-specific distributional characteristics, this study's findings are only consistent with one of the six acquisition hypotheses. After adjusting for distributional properties, the results are consistent with four of the six acquisition hypotheses. Furthermore, the adjusted model produces a classification accuracy significantly greater than chance, as well as significantly greater than that observed for the unadjusted model.

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“…Results from Tables and confirm that the distributions of the ratios analyzed are asymmetric and leptokurtic. This is in accordance with results in previous studies on the statistical distributions of financial indicators (Lau et al ., ; Martikainen et al ., ; among others), and in principle advises against using linear classifiers. Equality of medians is clearly rejected for r 2 , r 3 and r 4 .…”

Section: Design Of the Studymentioning

confidence: 98%

Nonparametric Quantile Regression‐Based Classifiers for Bankruptcy Forecasting

Lorca

Landajo

Andrés

2013

Journal of Forecasting

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An improved classification device for bankruptcy forecasting is proposed. The proposed approach relies on mainstream classifiers whose inputs are obtained from a so‐called multinorm analysis, instead of traditional indicators such as the ROA ratio and other accounting ratios. A battery of industry norms (computed by using nonparametric quantile regressions) is obtained, and the deviations of each firm from this multinorm system are used as inputs for the classifiers. The approach is applied to predict bankruptcy on a representative sample of Spanish manufacturing firms. Results indicate that our proposal may significantly enhance predictive accuracy, both in linear and nonlinear classifiers. Copyright © 2013 John Wiley & Sons, Ltd.

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On Modeling Cross Sectional Distributions of Financial Ratios

Cited by 19 publications

References 58 publications

Double Entry Bookkeeping and the Distributional Properties of a Firm's Financial Ratios

Double Entry Bookkeeping and the Distributional Properties of a Firm's Financial Ratios

Industry Distributional Characteristics of Financial Ratios: An Acquisition Theory Application

Nonparametric Quantile Regression‐Based Classifiers for Bankruptcy Forecasting

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