An evaluation of the accounting rate of return : evidence for Dutch quoted firms

Although the accounting rate of return (ARR) is traditionally regarded as an important profitability measure in ratio analysis, there has been relatively little theoretical and empirical analysis on its statistical properties and its intrinsic ability to explain market returns. This paper provides an empirical examination of the distributional properties and a time-series analysis of the ARR’s of listed Dutch companies for the years from 1978 to 1997. Furthermore we examine how the ARR is related to market return and risk. We investigate the distributional properties of the accounting rate of return. Our study confirms prior international research which concludes that ARR follows a non-normal distribution. Previous US and UK studies suggest that time series earnings or ARR can be characterized by a random walk or a mean-reverting process. The time series results of our sample are characterized by mean reversion. This paper extends the empirical research on ARR by deriving a panel data analysis that yields more reliable estimates. Researchers using US data found that the ARR was deficient as a representation of market returns and was not related to systematic risk. We find the opposite.

Why do firms go public?

Ambitious chief executives considering the possibility of floating their company on a major stock exchange should be careful what they wish for. They need to be sure that they are making the decision for the right reasons, at the right time, and that the initial public offering (IPO) is made in the right location

An evaluation of the accounting rate of return : evidence for Dutch quoted firms

Although the accounting rate of return (ARR) is traditionally regarded as an important profitability measure in ratio analysis, there has been relatively little theoretical and empirical analysis on its statistical properties and its intrinsic ability to explain market returns. This paper provides an empirical examination of the distributional properties and a time-series analysis of the ARR’s of listed Dutch companies for the years from 1978 to 1997. Furthermore we examine how the ARR is related to market return and risk. We investigate the distributional properties of the accounting rate of return. Our study confirms prior international research which concludes that ARR follows a non-normal distribution. Previous US and UK studies suggest that time series earnings or ARR can be characterized by a random walk or a mean-reverting process. The time series results of our sample are characterized by mean reversion. This paper extends the empirical research on ARR by deriving a panel data analysis that yields more reliable estimates. Researchers using US data found that the ARR was deficient as a representation of market returns and was not related to systematic risk. We find the opposite.

An Evaluation of the Accounting Rate of Return: Evidence for Dutch Quoted Firms ♦ SOM-theme E Financial markets and institutions

Abstract Although the accounting rate of return (ARR) is traditionally regarded as an important profitability measure in ratio analysis, there has been relatively little theoretical and empirical analysis on its statistical properties and its intrinsic ability to explain market returns. This paper provides an empirical examination of the distributional properties and a time-series analysis of the ARR's of listed Dutch companies for the years from 1978 to 1997. Furthermore we examine how the ARR is related to market return and risk. We investigate the distributional properties of the accounting rate of return. Our study confirms prior international research which concludes that ARR follows a nonnormal distribution. Previous US and UK studies suggest that time series earnings or ARR can be characterized by a random walk or a mean-reverting process. The time series results of our sample are characterized by mean reversion. This paper extends the empirical research on ARR by deriving a panel data analysis that yields more reliable estimates. Researchers using US data found that the ARR was deficient as a representation of market returns and was not related to systematic risk. We find the opposite

Why do firms go public? The role of the product market

This paper investigates the effect of product market characteristics on the decision to go public. When firms decide to go public or remain private, they trade off product market related costs and benefits. Costs arise from the loss of confidential information to competitors, e.g., in the IPO prospectus and subsequent mandated public disclosures, while benefits emerge from raising capital allowing the firm to strengthen its position in the product market. Our results show that UK firms are more likely to go public when they operate in a more profitable industry and in an industry with lower barriers to entry. These firms are more likely to go public in order to improve their position in the product market and to deter new entrants into the industry. However, firms from more competitive industries and firms with smaller market share are less likely to go public. For these firms the loss of confidential information to rivals outweighs the benefits of going public