An index of growth due to depreciation*

Abstract. While factors such as inflation, technological change and growth often have been discussed in connection with the adequacy of provisions for depreciation under a historical cost model, there is another dimension to the capital maintenance problem and it concerns the multiplier effect of depreciation. When an amount equal to depreciation is reinvested, a firm's productive capacity tends to increase. Reinvestment of depreciation also increases a firm's financial capital if book depreciation is more accelerated than economic depreciation. Based on a model developed by Ijiri (1967), this paper derives an index of this growth due to depreciation. The index estimates a bias in conventional depreciation methods that has been overlooked in the literature on the subject. This bias has implications for inflation accounting because if conventional depreciation methods have a built-in growth bias, adjustments for inflation may be a type of double counting. A second implication mentioned concerns the bias in accounting rates of return. Résumé. Bien que des facteurs tels l'inflation, les changements technologiques et la croissance ont souvent été examinés à propos de la pertinence des provisions pour dépréciation dans le cadre du modèle au coût historique, un autre aspect du problème de préservation du capital subsiste et il concerne l'effet multiplicateur de l'amortissement. Lorsqu'un montant égal à l'amortissement est réinvesti, la capacité d'exploitation de la firme a tendance à s'accroître. Le réinvestissement de l'amortissement fait aussi augmenter le capital de la firme si l'amortissement comptable est plus accéléré que la dépréciation économique. En se basant sur un modèle élaboré par Ijiri (1967), cet article dérive un indice de cette croissance attribuable à l'amortissement. L'indice estime un biais des méthodes traditionnelles, qui a été négligé dans les recherches consacrées au sujet. Ce biais a des implications en comptabilité des effets de l'inflation, car si les méthodes d'amortissement traditionnelles comportent implicitement ce biais de croissance, les redressements relatifs à l'inflation peuvent être assimilés à un double comptage. Une deuxième conséquence est signalée, soit le biais relatif aux taux de rendement comptable.     

THE EFFECT OF A SINKING FUND ON THE REOFFERING YIELDS OF NEW PUBLIC UTILITY BONDS

In this study, empirical tests are conducted to determine the impact of a sinking fund on reoffering yields of a sample of new public utility bonds sold between January 1977 and March 1982. The findings of the regression analysis are consistent with the hypotheses that the value of the sinking fund varies with the default risk of the issuer and with market expectations of future interest rate movements, and that the sinking fund improves the liquidity of a bond issue.     

Assessing the competitive power of a region

The paper explores theoretical approaches to estimating a region’s competitiveness and its underlying factors. The competitive power indicators of the economic complex of Mogilev oblast, Belarus, are analyzed and its regional competitiveness is estimated on the basis of statistical data.     

Developing countries and the future of the automobile industry

This paper reassesses the controversial view which has assumed that, at some point in the future, the global automobile industry, having reached maturity, would naturally migrate to the leading developing countries where the markets are growing more rapidly and wages are substantially lower. The authors argue that the threshold facing a developing country seeking to establish a domestic automobile industry has risen because of two recent developments: the rise of Japan as a major automobile producer; and a new wave of technological and organizational innovation. This involves use of state-of-the-art microelectronics and flexible manufacturing system, as well as complete restructing of component supply resulting in considerable unit cost and lead-time advantages.The authors look at what these trends mean for both the OECD and the developing countries. They outline the conventional view in more detail and then present an alternative analysis of the evolution of the industry. New policy options for the developing countries are spotlighted.     

Developing a Learning Community Approach to Business Ethics Education

In this paper we discuss a project, still in progress, that moves away from a traditional lecture based educational pedagogy. We present a team taught approach to ethics teaching that embraces a progressive philosophy of education and is focused on the development of a discussion based learning community. We describe our primary pedagogical tools of case discussion and the development of student expert role assignments as a locus, and how they relate to the learning community, course content and course objectives. Finally, we provide our preliminary review of outcomes and emerging issues.     

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