Firm-Size and the Predictive Ability of Quarterly Earnings Data

We present evidence on inter-firm differences in the predictive ability of quarterly earnings data for a sample of 109 New York Stock Exchange firms. The sample consisted of large, medium, and small firms after deletion of nonseasonal and volatile growth and inconsistent strata membership firms. Although the structure of the best fitting time-series models was constant across firm-size strata, we did find significant differences in the autoregressive parameters of the Foster and Brown and Rozeff ARIMA models across firm-size strata. One-step-ahead quarterly earnings forecasts were generated by a set of best fitting time-series models. A repeated measure multivariate analysis of variance design indicated that predictive ability differed on the basis of size at the.012 level. Tests also indicated that large-and medium-size firms generated one-step-ahead forecasts that were significantly more accurate than smaller firms at the.05 level. We obtained similar predictive findings on the significance of the size-effect in a supplementary analysis of the nonseasonal and volatile growth and inconsistent strata membership firms.