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Estimation of the Economic Rate of Return for Industrial Companies

Author

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  • Shinnear, Reuel
  • Dressler, Ofer
  • Feng, C A
  • Avidan, Alan I

Abstract

The estimated rate of return in any investment is the discount rate that equates the present value of its expected net revenue stream to its initial outlay. Despite its importance, there are no agreed-on methods of estimating its past average values for a given company, nor are there any extensive data for different industries. This article presents a method for estimating the real economic rate of return of large industrial companies and shows that it is possible to get robust bounds on it. The economic rate of return can strongly differ from the accounting rate of return. For most companies, the economic rate of return on an inflation-adjusted basis has been declining during the last twenty years. Coauthors are Ofer Dressler, C. A. Feng, and Alan I. Avidan. Copyright 1989 by the University of Chicago.

Suggested Citation

  • Shinnear, Reuel & Dressler, Ofer & Feng, C A & Avidan, Alan I, 1989. "Estimation of the Economic Rate of Return for Industrial Companies," The Journal of Business, University of Chicago Press, vol. 62(3), pages 417-445, July.
    • Handle: RePEc:ucp:jnlbus:v:62:y:1989:i:3:p:417-45
    DOI: 10.1086/296469
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    Cited by:

    1. Toms, Steven, 2005. "Financial control, managerial control and accountability: evidence from the British Cotton Industry, 1700-2000," Accounting, Organizations and Society, Elsevier, vol. 30(7-8), pages 627-653.
    2. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2001. "Corporate Governance, Capital MarketDiscipline and the Returns on Investment," CIG Working Papers FS IV 01-25, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    3. Klaus Gugler, 1998. "Corporate Ownership Structure in Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 25(3), pages 285-307, January.
    4. Klaus Gugler, 2003. "Corporate governance and investment," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 261-289.

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