Does Interindustry and Intraindustry Information Help Predict Financial Distress?
Journal
International Review of Finance
Journal Volume
19
Journal Issue
3
Pages
665-679
Date Issued
2018
Author(s)
Abstract
Abstract This study investigates whether and how the accounting ratios of peer firms within the same industry (the industry peers) or firms within the industry of their customers (the downstream peers) help improve the predictability of sample firm financial distress. We document that the Z ‐score factors of the companies with high correlation in stock returns help predict financial distress. The results show that accounting‐based ratios of the industry peers and the downstream peers enhance the accuracy of early warnings of financial distress, especially when prior returns of peer firms are highly correlated with the sample firm.
Type
journal article