Measuring the Economic Rate of Return on Assets

Abstract

This paper (1) describes a procedure for correctingthe deficiencies associated with the accounting rateof return, and for capitalizing the intangible assetscreated by the firm's R & D expenditures; and (2)demonstrates the superiority of the derived measure ofrate of return in a fixed effects model testing therelative influence of firm and industry effects onreturns. Both of these influences are shown to bemuch stronger than in previous empirical work.

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Kapler, J.K. Measuring the Economic Rate of Return on Assets. Review of Industrial Organization 17, 457–463 (2000). https://doi.org/10.1023/A:1007890132456

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  • Accounting rate of return
  • economic rate of return
  • firm fixed effects
  • industry fixed effects