Connecting book rate of return to risk and return: the information conveyed by conservative accounting

• 成果类型: Article
• 署名作者: Penman, Stephen H.; Zhang, Xiao-Jun
• 署名单位: Columbia University; University of California System; University of California Berkeley
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-020-09558-5
• 发表日期: 2021
• 页码: 391-423
• 关键词: research-and-development; intertemporal cost allocation; COMMON-STOCKS; earnings; INVESTMENT; performance; GROWTH; profitability; depreciation; valuation

摘要

This paper revises the standard interpretation of the book rate of return as a measure of profitability. Rather, due to conservative accounting, the book rate of return informs about risk and the expected return to the investor. In contrast to asset pricing research, where the book rate of return is viewed as positively associated with risk and expected stock returns, the paper demonstrates the opposite: with the effect of conservative accounting, the book rate of return is negatively associated with risk and expected return. The empirical analysis indicates that the market prices equities accordingly. It also shows how the previously documented positive correlation is due to a misunderstanding of accounting and how the book rate of return enters into asset pricing in a way that is consistent with the accounting.