Detecting abnormal operating performance: The empirical power and specification of test statistics

Detecting abnormal operating performance: The empirical power and specification of test statistics This research evaluates methods used in event studies that employ accounting-based measures of operating performance. We examine the choice of an accounting-based performance measure, a statistical test, and a model of expected operating performance. We document the impact of these choices on the test statistics designed to detect abnormal operating performance. We find that commonly used research designs yield test statistics that are misspecified in cases where sample firms have performed either unusually well or poorly. In this sampling situation, the test statistics are only well specified when sample firms are matched to control firms of similar pre-event performance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Detecting abnormal operating performance: The empirical power and specification of test statistics

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Publisher
Elsevier
Copyright
Copyright © 1996 Elsevier Ltd
ISSN
0304-405x
D.O.I.
10.1016/0304-405X(96)84701-5
Publisher site
See Article on Publisher Site

Abstract

This research evaluates methods used in event studies that employ accounting-based measures of operating performance. We examine the choice of an accounting-based performance measure, a statistical test, and a model of expected operating performance. We document the impact of these choices on the test statistics designed to detect abnormal operating performance. We find that commonly used research designs yield test statistics that are misspecified in cases where sample firms have performed either unusually well or poorly. In this sampling situation, the test statistics are only well specified when sample firms are matched to control firms of similar pre-event performance.

Journal

Journal of Financial EconomicsElsevier

Published: Jul 1, 1996

References

  • The reverse LBO decision and firm performance: Theory and evidence
    DeGeorge, Francois; Zeckhauser, Richard
  • Causes of financial distress following leveraged recapitalizations
    Denis, David J.; Denis, Diane K.
  • A requiem for the USA: Is small shareholder monitoring effective
    Strickland, Deon; Wiles, Kenneth W.; Zenner, Marc
  • Earnings management in seasoned equity offerings
    Teoh, Siew Hong; Welch, Ivo; Wong, T.J.

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