Industry Distributional Characteristics of Financial Ratios: An Acquisition Theory Application.

This study explores the importance of capturing industry-specific distributional characteristics in analyses based on financial ratios. As a test case, the study replicates Palepu (1986), who employs financial ratios in logit models to investigate the usefulness of six acquisition hypotheses in predicting takeover targets. Without adjustment for industry-specific distributional characteristics, this study's findings are only consistent with one of the six acquisition hypotheses. After adjusting for distributional properties, the results are consistent with four of the six acquisition hypotheses. Furthermore, the adjusted model produces a classification accuracy significantly greater than chance, as well as significantly greater than that observed for the unadjusted model. Copyright 2000 by MIT Press.