Financial Statement Change and Equity Risk

26 Pages Posted: 7 Mar 2019

See all articles by Michael Senteney

Michael Senteney

Ohio University

David L. Stowe

Ohio University; Ohio University - College of Business; Ohio University - Department of Finance

John D. Stowe

Ohio University

Date Written: February 16, 2019

Abstract

While financial statement analysis is a rich tool, there is no widely used holistic measure of the amount of change in corporate financial statements. Statistical decomposition analysis has been employed as an index of the amount of change, but has fallen into disuse because it does not allow negative accounting numbers. As a remedy, this paper suggests three distance measures adapted from cluster analysis that avoid this critical data limitation. We successfully apply these proposed distance measures to explain the total and systematic risk of stock returns (in the CAPM and Fama-French model), corporate bond ratings, and corporate distress.

Keywords: financial statement change, distance measures, accounting statistical decomposition measures, CAPM, Fama-French model, corporate bond ratings, Altman Z-score

JEL Classification: G11, G12, M41

Suggested Citation

Senteney, Michael and Stowe, David L. and Stowe, John D., Financial Statement Change and Equity Risk (February 16, 2019). Available at SSRN: https://ssrn.com/abstract=3335910 or http://dx.doi.org/10.2139/ssrn.3335910

Michael Senteney

Ohio University ( email )

Athens, OH 45701-2979
United States

David L. Stowe

Ohio University ( email )

Athens, OH 45701-2979
United States

Ohio University - College of Business ( email )

Athens, OH 45701-2979
United States

Ohio University - Department of Finance ( email )

640 Copeland
Athens, OH 45701
United States

John D. Stowe (Contact Author)

Ohio University ( email )

640 Copeland
Athens, OH 45701
United States
(434) 409-0239 (Phone)

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