Distributional Forms of Financial Accounting Ratios: Pearson's and Johnson's Taxonomies 1

Abstract

Knowledge of the cross-sectional distributional forms of financial accounting ratios can be important to users of accounting information. But previous studies of the cross-sectional distributional forms of accounting ratios have been limited to examining for normality. In this paper, the cross-sectional distributions of forty-one common financial accounting ratios are classified according to the Pearson and Johnson systems for each year of a ten-year period. Ninety-seven percent of the distributions are J-shaped, reverse J-shaped, skewed, or U-shaped. The vast majority of the distributions are bounded. Also, thirty-five of the forty-one ratios have distributions with the same general form for at least eight years of the ten-year period.