The Components of Accounting Ratios as Co-integrated Variables |
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Authors: | Geoffrey Whittington,& Mark Tippett |
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Affiliation: | Faculty of Economics and Politics, University of Cambridge,;Department of Accounting and Finance, University of Exeter |
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Abstract: | Time series of accounting variables may often be non-stationary, i.e. they have a unit root, as in the common example of a random walk. This can lead to spurious results in time series regression analysis which uses such variables. The problem is overcome if the variables are co-integrated. This paper examines and tests the proposition that, where the variables are expressed in logarithmic form, calculating a ratio may capture the effects of co-integration. Thus, accounting ratios (calculated in logarithmic form) might be stationary, and therefore exempt from the econometric pathology associated with their component variables. |
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Keywords: | restructuring downsizing reorganizations labor expenses capital expenditures |
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