Beschreibung:
Research on earnings prediction has documented that the transitory component of current earnings undermines its predictive ability about future earnings. The implication of this finding is that a measure that better captures the underlying persistent component of earnings may prove very useful in predicting future earnings when used along with current earnings. Our study, based on a large sample of 1939 Spanish small and medium enterprises (SMEs), investigates whether an alternative mesure of performance ignored in previous research on earnings forecasting -i.e., relative efficiency- has predictive ability over and above current earnings and book value of equity. Relative efficiency captures the inherent ability of a firm -as compared to other similar firms- to make the most productive use of available resources and is measured using Data Envelopment Analysis (DEA) non-parametric technique. Our findings highlight that our DEA-based efficiency measure has an incremental predictive ability over and above current earnings and book value of equity for predicting future earnings. Moreover, we have further validated the models in a holdout sample and our results evidence the highest forecast accuracy of the model that includes our efficiency measure as an additional predictor to current earnings and book value of equity.