Abstract
PurposeThis paper seeks to examine the predictive ability of disaggregated earnings in forecasting future profitability conditional on keiretsu affiliation in the context of Japan.Design/methodology/approachIndustry‐adjusted future profitability measure is regressed on current profitability measures and on interaction terms of keiretsu affiliation and profitability measures. Out‐of‐sample forecasting test is conducted by regressing future profitability on current profitability measures for keiretsu‐affiliated and independent firms.FindingsDisaggregated earnings improve out‐of‐sampling forecasting for firms not affiliated with keiretsu networks. For the keiretsu‐affiliated firms industry adjustments actually diminish the out‐of‐sample forecasting accuracy.Research limitations/implicationsThe boundary between keiretsu‐affiliated and independent firms is not so obvious.Originality/valueExamining industry competitiveness in Japan using accounting information is a significant contribution to the literature.
Subject
General Economics, Econometrics and Finance,Finance,Accounting
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