Skip to main content
SpringerLink
Log in

Statistical Models of Accounting Data

  • Chapter
The Valuation of Shares and the Efficient-Markets Theory

Part of the book series: Studies in Finance and Accounting ((SFA))

  • 35 Accesses

Abstract

This chapter reviews major studies that have been made into the statistical structure of accounting data and especially those concerned with earnings per share. These studies have been carried out with the following aims in mind:

  1. (1)

    to see if there is any underlying structure to earnings per share movements;

  2. (2)

    to see if it is possible to predict earnings per share or other accounting data by statistical extrapolation; and

  3. (3)

    to see if it is possible to predict bankruptcy, mergers and other occurrences from accounting data.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Notes and References

  1. N. Gonedes, ‘Income Smoothing Behavior under Selected Stochastic Processes’, Journal of Business, vol. 45 (October 1972).

    Google Scholar 

  2. R. Ball, B. Lev and R. Watts, ‘Income Changes and Balance Sheet Compositions’, Journal of Accounting Research, vol. 11 (Autumn 1973 ).

    Google Scholar 

  3. I. M. D. Little, ‘Higgledy Piggledy Growth’, Bulletin of the Oxford Institute of Statistics (November 1962).

    Google Scholar 

  4. I. M. D. Little and A. C. Rayner, Higgledy Piggledy Growth Again (Oxford: Blackwell, 1966).

    Google Scholar 

  5. J. Lintner and R. R. Glauber, ‘Further Observations on Higgledy Piggledy Growth’, Paper for the Seminar on the Analysis of Security Prices (University of Chicago, May 1969 ).

    Google Scholar 

  6. J. E. Murphy, Jr, ‘Relative Growth of Earnings per Share — Past and Future’, Financial Analysts Journal, vol. 22 (November—December 1966 ).

    Google Scholar 

  7. R. H. Trent, ‘Corporate Growth Rates: An Analysis of their Intertemporal Association’, Southern Journal of Business, vol. 4 (October 1969).

    Google Scholar 

  8. R. Ball and R. Watts, ‘Some Time Series Properties of Accounting Income’, Journal of Finance, vol. 27 (June 1972).

    Google Scholar 

  9. W. Beaver, ‘The Time Series Behavior of Earnings’, Empirical Research in Accounting: Selected Studies 1970, Journal of Accounting Research, supplement (1970).

    Google Scholar 

  10. W. Frank, ‘A Study of the Predictive Significance of Two Income Measures’, Journal of Accounting Research (1969).

    Google Scholar 

  11. J. K. Simmons and J. Gray, ‘An Investigation of the Effect of Differing Accounting Frameworks on the Prediction of Net Income’, Accounting Review, vol. 44 (October, 1969 ).

    Google Scholar 

  12. Y. Peles, ‘Amortization of Advertising Expenditures in the Financial Statements’, Journal of Accounting Research, vol. 8 (Spring 1970 ).

    Google Scholar 

  13. R. Ball and P. Brown, ‘Some Preliminary Findings on the Association between the Earnings of a Firm, Its Industry and the Economy’, Empirical Research in Accounting: Selected Studies, 1967, Journal of Accounting Research, supplement (1967).

    Google Scholar 

  14. D. Green and J. Segall, ‘The Predictive Power of First-Quarter Earnings Reports’ Journal of Business, vol. 40 (January 1967).

    Google Scholar 

  15. D. Green and J. Segall, ‘The Predictive Power of First-Quarter Earnings Reports: A Replication’, Empirical Research in Accounting: Selected Studies, 1966, Journal of Accounting Research, supplement (1966).

    Google Scholar 

  16. P. Brown and V. Niederhoffer, ‘The Predictive Content of Quarterly Earnings’, Journal of Business, vol. 41 (October, 1968 ).

    Google Scholar 

  17. D. Green and J. Segall, ‘Brickbats and Straw Men: A Reply to Brown and Niederhoffer’, Journal of Business, vol. 41 (October 1968);

    Google Scholar 

  18. V. Niederhoffer, ‘The Predictive Content of First Quarter Earnings Reports’, Journal of Business, vol. 43 (January 1970);

    Google Scholar 

  19. D. Green and J. Segall, ‘Return of Strawman’, Journal of Business, vol. 43 (January 1970).

    Google Scholar 

  20. R. Coates, ‘The Predictive Content of Interim Reports — A Time Series Analysis’, Empirical Research in Accounting: Selected Studies, 1972, Journal of Accounting Research, supplement, vol. 10 (1972).

    Google Scholar 

  21. P. Brown and J. W. Kennelly, ‘The Informational Content of Quarterly Earnings: An Extension and Some Further Evidence’, Journal of Business, vol. 45 (July 1972).

    Google Scholar 

  22. F. K. Reilly, D. L. Morgenson and M. West, ‘The Predictive Ability of Alternative Parts of Interim Financial Statements’, Empirical Research in Accounting: Selected Studies, 1972, Journal of Accounting Research, supplement, vol. 10 (1972).

    Google Scholar 

  23. H. A. Latané, D. L. Tuttle and C. P. Jones, ‘E/P Ratios v Changes in Earnings in Forecasting Future Price Changes’, Financial Analysts Journal, vol. 25 (January—February 1969 ).

    Google Scholar 

  24. C. P. Jones and R. H. Litzenberger, ‘Quarterly Earnings Reports and Intermediate Stock Price Trends’, Journal of Finance, vol. 25 (March 1970).

    Google Scholar 

  25. M. A. Firth, ‘The Impact of Earnings Announcements on the Share Price Behaviour of Similar Type Firms’, Economic Journal (June 1976).

    Google Scholar 

  26. E. I. Altman, ‘Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy’, Journal of Finance, vol. 23 (September 1968).

    Google Scholar 

  27. J. R. Ramser and L. O. Foster, ‘A Demonstration of Ratio Analysis’, Bulletin No. 40, Bureau of Business Research, University of Illinois (1931).

    Google Scholar 

  28. P. J. Fitzpatrick, ‘A Comparison of Ratios of Successful Industrial Enterprises with those of Failed Firms’, Certified Public Accountant, vol. 12 ( October, November and December 1932 ).

    Google Scholar 

  29. C. H. Winakor and R. F. Smith, ‘Changes in Financial Structure of Unsuccessful Industrial Companies’, Bulletin No. 51, Bureau of Economic Research, University of Illinois (1935).

    Google Scholar 

  30. C. L. Merwin, Financing Small Corporations in Five Manufacturing Industries 1926–36 (New York: National Bureau of Economic Research, 1942 ).

    Google Scholar 

  31. R. J. Saulnier, H. G. Halcrow and N. H. Jacoby, Federal Lending and Loan Insurance (Princeton University Press, 1958 ).

    Google Scholar 

  32. G. H. Moore and T. R. Atkinson, ‘Risks and Returns in Small Business Financing’, in Towards a Firmer Basis of Economic Policy, 41st Annual Report, National Bureau of Economic Research (1961).

    Google Scholar 

  33. M. H. Seiden, ‘Trade Credit: A Quantitative and Qualitative Analysis’, in Tested Knowledge of Business Cycles, 42nd Annual Report, National Bureau of Economic Research (1962).

    Google Scholar 

  34. W. H. Beaver, ‘Financial Ratios as Predictors of Failures’, Empirical Research in Accounting: Selected Studies, 1966, Journal of Accounting Research, supplement, vol. 4 (1966).

    Google Scholar 

  35. W. H. Beaver, ‘Market Prices, Financial Ratios, and the Prediction of Failure’, Journal of Accounting Research, vol. 6 (Autumn 1968 ).

    Google Scholar 

  36. J. W. Wilcox, ‘A Prediction of Business Failure Using Accounting Data’, Empirical Research in Accounting: Selected Studies, 1973, Journal of Accounting Research, supplement, vol. II (1973).

    Google Scholar 

  37. E. I. Altman, ‘Financial Ratios, Discriminant Analysis’, and Corporate Bankruptcy in America ( Lexington: Heath, 1971 ).

    Google Scholar 

  38. J. E. Walter, ‘A Discriminant Function for Earnings Price Ratios of Large Industrial Corporations’, Review of Economics and Statistics, vol. 41 (February 1959).

    Google Scholar 

  39. R. Tafer, ‘Finding Those Firms in Danger’, Accountancy Age (16 July 1976 ).

    Google Scholar 

  40. P. A. Meyer and H. W. Pifer, ‘Prediction of Bank Failures’, Journal of Finance, vol. 25 (September 1970).

    Google Scholar 

  41. G. Ladd, ‘Linear Probability Functions and Discriminant Functions’, Econometrica, vol. 33 (October 1965).

    Google Scholar 

  42. R. Westerfield, ‘Pre-Bankruptcy Stock Price Performance’, Working Paper, University of Pennsylvania (Autumn 1970 ).

    Google Scholar 

  43. R. O. Admister, ‘An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction’, Journal of Financial and Quantitative Analysis, vol. 7 (March 1972);

    Google Scholar 

  44. E. I. Altman, ‘Corporate Bankruptcy Potential, Stockholder Returns and Share Valuation’, Journal of Finance, vol. 24 (December 1969), ‘Railroad Bankruptcy Potential’, Journal of Finance, vol. 26 (May 1971)

    Google Scholar 

  45. E. I. Altman, ‘Predicting Railroad Bankruptcies in America’, Bell Journal of Economics and Management Science, vol. 4 (Spring 1973 );

    Google Scholar 

  46. N. Baxter, ‘Leverage, Risk and Ruin and Cost of Capital’, Journal of Finance, vol. 22 (September 1967);M. Blum, ‘The Failing Company Doctrine’, Ph.D. dissertation, Columbia University (1969);

    Google Scholar 

  47. E. A. Deakin, ‘A Discriminant Analysis of Predictors of Business Failure’, Journal of Accounting Research, vol. 10 (Spring 1972 ).

    Google Scholar 

  48. K. Lewis, ‘Business Failures — Another Example of the Analysis of Failure Data’, Journal of the American Statistical Association, vol. 49 (December 1954);

    Google Scholar 

  49. H. N. Broom and J. G. Longenecker, Small Business Management ( Cincinnati: South-Western Publishing Co., 1971 ).

    Google Scholar 

  50. L. Fisher, ‘Determinants of Risk Premiums on Corporate Bonds’, Journal of Political Economy, vol. 67 (June 1959).

    Google Scholar 

  51. G. Harold, Bond Ratings as an Investment Guide (New York: Ronald Press, 1938);

    Google Scholar 

  52. O. K. Burrell, A Study in Investment Mortality, Bureau of Business Research, School of Business Administration, University of Oregon (1947);

    Google Scholar 

  53. W. B. Hickman, Corporate Bond Quality and Investor Experience (Princeton University Press for the National Bureau of Economic Research, 1958 ).

    Google Scholar 

  54. A. C. Esokait, ‘The Men Who Make Treasures Tremble’, Forbes (1 September 1970 ).

    Google Scholar 

  55. J. O. Horrigan, ‘The Determination of Long-Term Credit Standing with Financial Ratios’, Empirical Research in Accounting: Selected Studies, 1966, Journal of Accounting Research, vol. 4, supplement (1966).

    Google Scholar 

  56. R. R. West, ‘An Alternative Approach to Predicting Corporate Bond Ratings’, Journal of Accounting Research, vol. 8 (Spring 1970 ).

    Google Scholar 

  57. G. E. Pinches and K. A. Mingo, ‘A Multivariate Analysis of Industrial Bond Ratings’, Journal of Finante, vol. 28 (March 1973).

    Google Scholar 

  58. T. F. Pogue and R. M. Soldofsky, ‘What’s in a Bond Rating’, Journal of Financial and Quantitative Analysis, vol. 4 (June 1969).

    Google Scholar 

  59. W. T. Carleton and E. M. Lerner, ‘Statistical Credit Scoring of Municipal Bonds’, Journal of Money, Credit and Banking, vol. 1 (November 1969).

    Google Scholar 

  60. J. J. Horton Jr, ‘Statistical Classification of Municipal Bonds’, Journal of Bank Research, vol. s (Autumn 1970 ).

    Google Scholar 

  61. Y. E. Orgler, ‘A Credit Scoring Model for Commercial Loans’, Journal of Money, Credit and Banking, vol. 2 (November 1970).

    Google Scholar 

  62. D. D. Hester, ‘An Empirical Examination of a Commercial Bank Loan Offer Function’, Yale Economic Essays, vol. 2 (Spring 1962 ).

    Google Scholar 

  63. K. J. Cohen, C. Gilmore and F. A. Singer, ‘Bank Procedures for Analyzing Business Loan Applications’, in Analytical Methods in Banking, ed. K. J. Cohen and F. S. Hammer ( Homewood, Ill.: Irwin, 1966 ).

    Google Scholar 

  64. A. W. Wojnilower, The Quality of Bank Loans, Occasional Paper 82, National Bureau of Economic Research (1962).

    Google Scholar 

  65. H. K. Wu, ‘Bank Examiner Criticism, Bank Loan Defaults, and Bank Loan Quality’, Journal of Finance (September 1969).

    Google Scholar 

  66. A. Singh, Takeovers: Their Relevance to the Stock Market and the Theory of the Firm (Cambridge University Press, 1971 ).

    Google Scholar 

  67. D. Kuehn, Takeovers and the Theory of the Firm ( London: Macmillan, 1975 ).

    Book  Google Scholar 

  68. J. Tzoannos and J. M. Samuels, ‘Mergers and Takeovers: The Financial Characteristics of Companies Involved’, Journal of Business Finance (Autumn 1972 ).

    Google Scholar 

  69. J. M. Samuels and J. Tzoannos, ‘Takeovers and Share Price Evaluation’, Business Ratios (Summer 1970 ).

    Google Scholar 

  70. G. D. Newbould, Management and Merger Activity ( Liverpool: Guthstead, 1970 ).

    Google Scholar 

  71. A. Buckley, ‘A Profile of Industrial Acquisitions in 1971’, Accounting and Business Research (Autumn 1972 ).

    Google Scholar 

  72. R. A. Taussig and S. L. Hayes, ‘Cash Takeovers and Accounting Valuations’, Accounting Review (January 1968).

    Google Scholar 

  73. D. L. Stevens, ‘Financial Characteristics of Merged Firms: A Multivariate Analysis’, Journal of Financial and Quantitative Analysis vol. 8 (March 1973).

    Google Scholar 

  74. R. J. Monroe and M. A. Simkowitz, ‘Investment Characteristics of Conglomerate Targets: A Discriminant Analysis’, Southern Journal of Business (November 1971).

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Accountancy and Business Law, University of Stirling, UK

    Michael Firth (Lecturer)

Authors
  1. Michael Firth
    View author publications

    You can also search for this author in PubMed Google Scholar

Copyright information

© 1977 Michael Firth

About this chapter

Cite this chapter

Firth, M. (1977). Statistical Models of Accounting Data. In: The Valuation of Shares and the Efficient-Markets Theory. Studies in Finance and Accounting. Palgrave, London. https://doi.org/10.1007/978-1-349-15819-5_4

Download citation

Publish with us

Policies and ethics

Search

Navigation