Investment dynamics and the timeliness properties of accounting numbers
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233540392-MIT.pdf
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Full printable version
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3.55 MB
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Author(s)
Papadakis, George, Ph. D. Massachusetts Institute of Technology
Advisor(s)
S.P. Kothari.
Date Issued
2007
Publisher
Massachusetts Institute of Technology
Abstract
This paper examines the properties of accounting numbers using a real investment framework that predicts asymmetric timeliness of both investment and its outcomes (i.e. sales, earnings and operating cash flows) even in the absence of conservative accounting. In particular, I predict and find that firms are able to react more quickly to negative economic shocks (by cutting investment and employment) than to positive economic shocks (where there is a lag in implementing new investments or expanding employment). Next, I create the link between real investment and operating decisions and accounting by examining properties of sales and cash sales. I focus on analyzing sales and cash sales because real investment and operating activities are likely to have a great impact on the timeliness and time-series properties of these variables. I hypothesize that due to the slow investment adjustment to positive shocks, sales will exhibit a relatively stronger sensitivity to negative versus positive shocks. I also predict that sales will reflect a positive shock over time (positive autocorrelation) whereas a negative shock will be reflected in sales in a more immediate and permanent fashion. I find strong empirical support for both predictions. Cross-sectional tests lend further support to my hypothesis that real operating and investment activities play a crucial role in determining the observed properties of accounting numbers.
Description
Thesis (Ph. D.)--Massachusetts Institute of Technology, Sloan School of Management, 2007.
Includes bibliographical references (leaves 45-47).
Subjects
Sloan School of Management.
MIT Department
Sloan School of Management
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