Accounting and Economic Rates of Return: a Dynamic Econometric Investigation
AbstractMany studies have questioned empirical utilization of accounting data as internal rates of return would be more consistent with the relevant economic concept. The paper investigates the dynamic relationships between different measures of accounting rates of return (ARRs) and different approximations for the internal rates of returns (IRRs). In contrast with the prevailing case-study investigations, one considers a panel for quoted Brazilian firms in the manufacturing industry along the 1988-3/2003-2 period. Granger causality tests are considered and even though the results are not completely clear cut, some discernible uni-directional patterns emerge. In particular, there seems to be informational content between economic and accounting rates of return, between ROA (Net Profits/Total Assets) and PM (Gross Profits/ Operational Income), and internal rates of return. This seems to indicate that there is some validity in using accounting rates of return in certain economic studies.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2006/7.
Date of creation: 2006
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Find related papers by JEL classification:
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
This paper has been announced in the following NEP Reports:
- NEP-ACC-2006-05-20 (Accounting & Auditing)
- NEP-ALL-2006-05-20 (All new papers)
- NEP-COM-2006-05-20 (Industrial Competition)
- NEP-FMK-2006-05-20 (Financial Markets)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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