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Investment dynamics and the timeliness properties of accounting numbers

Author(s)
Papadakis, George, Ph. D. Massachusetts Institute of Technology
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Other Contributors
Sloan School of Management.
Advisor
S.P. Kothari.
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M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission. http://dspace.mit.edu/handle/1721.1/7582
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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).
 
Date issued
2007
URI
http://hdl.handle.net/1721.1/42336
Department
Sloan School of Management
Publisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.

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