Accounting and Economic Rates of Return: a Dynamic Econometric Investigation
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 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.
|Date of creation:||2006|
|Contact details of provider:|| Postal: Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy|
Web page: http://www.eui.eu/ECO/
More information through EDIRC
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.:
- Verma, Kiran, 1990. "Effects of accounting techniques on the study of market power," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 587-598, December.
- Kelly, Gary, 1996. "Accounting and economic rates of return: Additional Australian evidence," Journal of Accounting and Public Policy, Elsevier, vol. 15(4), pages 347-372.
- Baber, William R. & Kang, Sok-Hyon, 1996. "Estimates of economic rates of return for the U.S. pharmaceutical industry, 1976-1987," Journal of Accounting and Public Policy, Elsevier, vol. 15(4), pages 327-346.
- Salamon, Gerald L, 1989. "Accounting Rates of Return: Reply," American Economic Review, American Economic Association, vol. 79(1), pages 290-293, March.
- Salamon, Gerald L., 1988. "On the validity of accounting rates of return in cross-sectional analysis: Theory, evidence, and implications," Journal of Accounting and Public Policy, Elsevier, vol. 7(4), pages 267-292.
- Feenstra, D.W. & Wang, H., 2000. "Economic and accounting rates of return," Research Report 00E42, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
- Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Martin, Stephen, 1988. "The measurement of profitability and the diagnosis of market power," International Journal of Industrial Organization, Elsevier, vol. 6(3), pages 301-321.
- Christopher Taylor, 1999. "The Cash Recovery Method of Calculating Profitability: An Application to Pharmaceutical Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 14(2), pages 135-146, March.
- Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
- Petri Rouvinen, 2002. "R&D-Productivity Dynamics: Causality, Lags, and "Dry Holes"," Journal of Applied Economics, Universidad del CEMA, vol. 5, pages 123-156, May.
- Fisher, Franklin M, 1984. "The Misuse of Accounting Rates of Return: Reply," American Economic Review, American Economic Association, vol. 74(3), pages 509-517, June.
- Salamon, Gerald L, 1985. "Accounting Rates of Return," American Economic Review, American Economic Association, vol. 75(3), pages 495-504, June.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
- repec:dgr:rugsom:00e42 is not listed on IDEAS
- R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, "undated". "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Kay, John A, 1976. "Accountants, Too, Could Be Happy in a Golden Age: The Accountant's Rate of Profit and the Internal Rate of Return," Oxford Economic Papers, Oxford University Press, vol. 28(3), pages 447-460, November.
- R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
When requesting a correction, please mention this item's handle: RePEc:eui:euiwps:eco2006/7. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julia Valerio)
If references are entirely missing, you can add them using this form.