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Distortion effects and extreme observations in empirical research: An analysis of the incremental information content of cash flows

Distortion effects and extreme observations in empirical research: An analysis of the incremental... Linear regression models are used in a number of studies examining the presence or absence of incremental information content in cash flows. The results of these studies are not consistent. This paper provides evidence of the impact that extreme observations can exert on parameter estimates in a regression model. Two techniques commonly used to address the problem of extreme observations are considered. These techniques, winsorising the data and trimming the data, are compared to a regression diagnostic technique, Cook's distance. The comparison of these techniques provides evidence that the choice of technique can determine the significance or otherwise of regression results. This paper concludes that the inconsistency in reported results examining the incremental information content in cash flows may be attributed to the techniques adopted to address the issue of extreme observations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting & Finance Wiley

Distortion effects and extreme observations in empirical research: An analysis of the incremental information content of cash flows

Accounting & Finance , Volume 37 (2) – Nov 1, 1997

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References (19)

Publisher
Wiley
Copyright
© 1997 Accounting and Finance Association of Australia and New Zealand
ISSN
0810-5391
eISSN
1467-629X
DOI
10.1111/j.1467-629X.1997.tb00319.x
Publisher site
See Article on Publisher Site

Abstract

Linear regression models are used in a number of studies examining the presence or absence of incremental information content in cash flows. The results of these studies are not consistent. This paper provides evidence of the impact that extreme observations can exert on parameter estimates in a regression model. Two techniques commonly used to address the problem of extreme observations are considered. These techniques, winsorising the data and trimming the data, are compared to a regression diagnostic technique, Cook's distance. The comparison of these techniques provides evidence that the choice of technique can determine the significance or otherwise of regression results. This paper concludes that the inconsistency in reported results examining the incremental information content in cash flows may be attributed to the techniques adopted to address the issue of extreme observations.

Journal

Accounting & FinanceWiley

Published: Nov 1, 1997

There are no references for this article.