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The Cross-Sectional Stability of Financial Ratio Patterns

Published online by Cambridge University Press:  06 April 2009

W. Bruce Johnson
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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.

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

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References

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