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Article: The impact of recession on the value-relevance of accounting ratios.
- Article from:
- Mid-Atlantic Journal of Business
- Article date:
- December 1, 1997
- Author:
CopyrightCOPYRIGHT 1997 Stillman School of Business. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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INTRODUCTION
Numerous studies have documented that financial ratios (e.g., return on assets, earnings to price, assets turnover, and so forth) are value-relevant, i.e., associated with stock returns.(1) The value-relevance of accounting ratios, however, appears to vary markedly across time.(2) Additionally, in studies that use identical model selection procedures (e.g., STEPWISE sequential selection procedures), markedly different models are typically derived across different time periods.(3)
Ou and Penman [1989] and Holthausen and Larcker [1992] document that ratios can be used in trading rule strategies to earn subsequent abnormal returns. The trading rules ...