Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics

Posted: 26 Aug 1999

See all articles by Brad M. Barber

Brad M. Barber

University of California, Davis

John D. Lyon

The University of Melbourne, Department of Accounting and Business Information Systems

Date Written: July 1994

Abstract

Many recent studies have analyzed the impact that corporate events or managerial decisions have on operating performance. In these studies, researchers face many methodological choices. This paper analyzes the effect that three dimensions of choice have on the specification and power of test-statistics designed to detect abnormal operating performance: (1) the selection of a performance measures (e.g. return on assets or return on sales), (2) the selection of a statistical test (e.g., parametric t-statistic or non-parametric Wilcoxon T*), and (3) the selection of a performance benchmark (where we evaluate nine different performance benchmarks). On the first two dimensions (choice of performance measures and statistical test) we generally find little difference in the specification and power of test-statistics. However, on the third dimension (choice of performance benchmark), only one benchmark -- matching sample firms to firms with the same two-digit SIC code and similar past performance -- is well-specified. In the conclusion, we provide specific recommendations about the choice of performance measure, test-statistic, and benchmark.

JEL Classification: G30

Suggested Citation

Barber, Brad M. and Lyon, John D., Detecting Abnormal Operating Performance: The Empirical Power and Specification of Test Statistics (July 1994 ). Available at SSRN: https://ssrn.com/abstract=5525

Brad M. Barber (Contact Author)

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

John D. Lyon

The University of Melbourne, Department of Accounting and Business Information Systems ( email )

Victoria
Melbourne, 3010
Australia

HOME PAGE: http://www.abis.unimelb.edu.au/who/staff/john_lyon.html

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