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Accounting and Economic Rates of Return: A Dynamic Econometric Investigation

Author

Listed:
  • Rodrigo M Zeidan

    (Unigranrio)

  • Marcelo Resende

    (IE/UFRJ)

Abstract

Many 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 an estimated internal rate of return (IRR). In contrast with the prevailing case-study investigations, we consider a panel for quoted Brazilian firms in the manufacturing industry for the 1988-3/2003-2 period. Granger causality tests are considered and the results indicate a bi-directional causality pattern when ROA (Net Profits/Total Assets) is considered as the accounting measure. This seems to indicate that there is some validity in using accounting rates of return in certain economic settings, especially when long time series are considered.

Suggested Citation

  • Rodrigo M Zeidan & Marcelo Resende, 2010. "Accounting and Economic Rates of Return: A Dynamic Econometric Investigation," Brazilian Review of Finance, Brazilian Society of Finance, vol. 8(1), pages 69-84.
    • Handle: RePEc:brf:journl:v:8:y:2010:i:1:p:69-84
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    References listed on IDEAS

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    Cited by:

    1. Tsoulfidis, Lefteris & Alexiou, Constantinos & Parthenidis, Thanasis, 2015. "Revisiting profit persistence and the stock market in Japan," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 10-24.

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    More about this item

    Keywords

    accounting rates of return; internal rate of return; Granger causality; panel data;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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