Accounting and Economic Rates of Return: A Dynamic Econometric Investigation

Rodrigo Zeidan and Marcelo Resende

Brazilian Review of Finance, 2010, vol. 8, issue 1, 69-84

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.

Keywords: accounting rates of return; internal rate of return; Granger causality; panel data (search for similar items in EconPapers)
JEL-codes: M21 M41 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Accounting and Economic Rates of Return: a Dynamic Econometric Investigation (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:brf:journl:v:8:y:2010:i:1:p:69-84

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