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The predictive ability of relative efficiency for future earnings : an application using data envelopment analysis to Spanish SMEs
[journal article]
Reverte, Carmelo; Guzman, Isidoro
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Please use the following Persistent Identifier (PID) to cite this document:http://nbn-resolving.de/urn:nbn:de:0168-ssoar-242229
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| Abstract | Research on earnings prediction has documented that the transitory component of current earnings undermines its predictive ability about future earnings. The implication of this finding is that a measure that better captures the underlying persistent component of earnings may prove very useful in predicting future earnings when used along with current earnings. Our study, based on a large sample of 1939 Spanish small and medium enterprises (SMEs), investigates whether an alternative mesure of performance ignored in previous research on earnings forecasting -i.e., relative efficiency- has predictive ability over and above current earnings and book value of equity. Relative efficiency captures the inherent ability of a firm -as compared to other similar firms- to make the most productive use of available resources and is measured using Data Envelopment Analysis (DEA) non-parametric technique. Our findings highlight that our DEA-based efficiency measure has an incremental predictive ability over and above current earnings and book value of equity for predicting future earnings. Moreover, we have further validated the models in a holdout sample and our results evidence the highest forecast accuracy of the model that includes our efficiency measure as an additional predictor to current earnings and book value of equity. |
| Classification | Business Administration; Economic Statistics, Econometrics, Business Informatics |
| Free Keywords | relative efficiency; earnings prediction; DEA; SMEs; Einkommen; Prognose; Data-Envelopment-Analyse; Klein- und Mittelunternehmen; Spanien |
| Document language | English |
| Publication Year | 2008 |
| Page/Pages | p. 2751-2757 |
| Journal | Applied Economics, 42 (2008) 21 |
| DOI | http://dx.doi.org/10.1080/00036840801964575 |
| Status | Postprint; reviewed |
| Licence | PEER Licence Agreement (applicable only to documents from PEER project) |
| Document Type | journal article |
