An empirical evaluation of profitability prediction methods and their relation with corporate characteristics
Una evaluación empírica de los métodos de predicción de la rentabilidad y su relación con las características corporativas
Abstract
This paper presents a critical evaluation of profitability prediction models based on the concept of persistence, based on a wide sample of Spanish companies. Our results indicate that 2 of functional specifications tested —the autoregressive and the separation of profitability components— yield the highest quality estimates in most cases for different measures of profitability and prediction horizons to one and five years. Moreover, the evidence found also demonstrates that the quality of predictions does not only depend on the estimation method chosen, but also on the corporate characteristics such as size, growth rates, and levels of current profitability.
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