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The Prediction of ROE: fundamental signals, accounting recognition and industry characteristics

Author: Joos, Peter Richard ; Joos, PhilipINSEAD Area: Accounting and Control Series: Working Paper ; 98/11/AC Publisher: Fontainebleau : INSEAD, 1998.Language: EnglishDescription: 40 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: We focus on the prediction of book return-on-equity (ROE). In particular,based on recent accounting and industrial organization literature, we compare the predictive power for ROE of three types of information variables: 1)fundamental signals in the financial statements agregated as a fundamental score of the firm, 2)accounting recognition variables based on the book-yo-market (BTM) ratio of the firm (delayed and biased recognition) and 3) varaibles that measure the characteristics of the firm's industry (concentration and barriers-to-entry and the market share of the company. The conclusion of our analyses is that all three sets of variables capture some piece of information about future ROE incremental to current ROE and to each other
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We focus on the prediction of book return-on-equity (ROE). In particular,based on recent accounting and industrial organization literature, we compare the predictive power for ROE of three types of information variables: 1)fundamental signals in the financial statements agregated as a fundamental score of the firm, 2)accounting recognition variables based on the book-yo-market (BTM) ratio of the firm (delayed and biased recognition) and 3) varaibles that measure the characteristics of the firm's industry (concentration and barriers-to-entry and the market share of the company. The conclusion of our analyses is that all three sets of variables capture some piece of information about future ROE incremental to current ROE and to each other

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