Accounting and Economic Rates of Return: a Dynamic Econometric Investigation

Rodrigo Zeidan and Marcelo Resende

No ECO2006/7, Economics Working Papers from European University Institute

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 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.

JEL-codes: M21 M41 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-acc, nep-com and nep-fmk
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Journal Article: Accounting and Economic Rates of Return: A Dynamic Econometric Investigation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2006/7

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