Industry Effects on Firm and Segment Profitability Forecasting

Schröder, D. & Yim, A. (2017). Industry Effects on Firm and Segment Profitability Forecasting. Contemporary Accounting Research,

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Abstract

Academics and practitioners have long recognized the importance of a firm’s industry membership in explaining its financial performance. Yet, contrary to conventional wisdom, recent research shows that industry-specific profitability forecasting models are not better than economy-wide models. The objective of this paper is to further explore this result and to provide insights into when and why industry-specific profitability forecasting models are useful. We show that industry-specific forecasts are significantly more accurate in predicting profitability for single-segment firms and, to some extent, for business segments. For multiple-segment firms, the aggregation of segment-level data for external reporting of firm-level financials obliterates the industry effects of their segments.

Item Type: Article
Additional Information: This is the accepted version of the following article: Schröder, D. & Yim, A. (2016). Industry Effects on Firm and Segment Profitability Forecasting: Do Aggregation and Diversity Matter?. Contemporary Accounting Research, which is to be published in final form at http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1911-3846
Uncontrolled Keywords: Industry membership, Profitability forecasting, Disaggregation, Segment disclosure
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/14472

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