The Duration of the Adjustment Process of Financial Ratios: Further Remarks.

In a recent paper, Yoram C. Peles and Meir I. Schneller (1989) ignore the sampling autocorrelation bias. A replication of their work that removes the bias changes their results. With the bias removed, there is no evidence that their three long-term ratios follow an adjustment process. Copyright 1992 by MIT Press.

The Duration of the Adjustment Process of Financial Ratios.

Are financial ratios an observed quantity that is influenced by firms or capital and product markets? The current body of empirical research concentrates on the time series behavior of such ratios when corporate distress is revealed. In this study the time series properties of joint-concern firms is examined. It is shown that for six financial ratios under examination, the data are consistent with partial adjustment process with finite adjustment durations. These durations are estimated through a methodology that does not require an a priori knowledge of the level toward which ratios are adjusted. Furthermore, the order of the six discerned durations is consistent with common wisdom. Copyright 1989 by MIT Press.