Open AccessAccounting Rates Of Return As Proxies For The Economic Rate Of Return: An Empirical Investigation
Author(s) -
Richard G. Elmendorf
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v9i2.6078
Subject(s) - rate of return , proxy (statistics) , profitability index , economics , time weighted return , internal rate of return , holding period return , accounting , econometrics , investment performance , return on investment , macroeconomics , profit (economics) , finance , statistics , mathematics , microeconomics , production (economics)
Accounting rates of return have been criticized by theoretical researchers as biased estimates of the economic rate of return. If true, results of past industrial organization research utilizing accounting measures of profitability are called into question. Using Tobins q to proxy for the economic rate of return, this study empirically investigates whether accounting rates of return are biased proxies for the economic rate of return. The empirical results support the findings of theoretical research.