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Assessing the importance of measurement error in capital investment models
Author(s) -
Connolly Robert A.
Publication year - 1986
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090070306
Subject(s) - economics , observational error , econometrics , investment (military) , capital investment , cash flow , econometric model , capital (architecture) , error correction model , cointegration , accounting , finance , archaeology , politics , political science , law , history
New developments in the economics of capital investment emphasize the role of financial variables. Econometric evidence on these hypotheses is potentially compromised by measurement error due to accounting conventions. The paper reviews new capital investment models and considers ways in which accounting procedures might lead to measurement error biases. Advances in errors‐in‐variables econometric models are employed to gauge the impact of measurement error on estimates of financial influences on capital investment. Cash‐flow models appear to be especially susceptible to measurement error but q models seem fairly insensitive to measurement problems.