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Discussion of “Conservatism, growth and return on investment”

Discussion of “Conservatism, growth and return on investment” Providing data for the measurement of financial performance is a key objective of financial reporting. Rajan, Reichelstein, and Soliman (2007, Conservatism, growth and return on investment, Review of Accounting Studies, this issue) provide new insights into the well known biases involved in measuring return on investment (ROI) on the basis of accrual accounting. They analyze the relationships among ROIs, growth rates, accrual policies and cash flow profiles in a fairly general steadystate model (only the last parameter is severely restricted). New and interesting results outside steady-state are presented as well. In the empirical part of the paper Rajan et al. demonstrate that the biases involved are systematic and economically significant. Hence empiricists must pay attention (whatever their sample sizes). Hopefully this paper will generate renewed interest in the analytical aspects of accrual accounting. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Conservatism, growth and return on investment”

Gjesdal, Froystein
Review of Accounting Studies , Volume 12 (3) – Apr 25, 2007
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References (6)

Publisher
Springer Journals
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
DOI
10.1007/s11142-007-9037-0
Publisher site
See Article on Publisher Site

Abstract

Providing data for the measurement of financial performance is a key objective of financial reporting. Rajan, Reichelstein, and Soliman (2007, Conservatism, growth and return on investment, Review of Accounting Studies, this issue) provide new insights into the well known biases involved in measuring return on investment (ROI) on the basis of accrual accounting. They analyze the relationships among ROIs, growth rates, accrual policies and cash flow profiles in a fairly general steadystate model (only the last parameter is severely restricted). New and interesting results outside steady-state are presented as well. In the empirical part of the paper Rajan et al. demonstrate that the biases involved are systematic and economically significant. Hence empiricists must pay attention (whatever their sample sizes). Hopefully this paper will generate renewed interest in the analytical aspects of accrual accounting.

Journal

Review of Accounting Studies – Springer Journals

Published: Apr 25, 2007

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