Accounting researchers try to calculate the future
Published: October 26, 2010 / Author: Ed Cohen
Accounting is usually associated with measuring what has happened or is happening in a company or industry. But researchers are finding new ways to use accounting to tell the future.
On Oct. 22 and 23 the Mendoza College of Business Department of Accountancy hosted the annual conference of the Review of Accounting Studies, a leading journal of accounting research. The theme of the conference was forecasting, and researchers from six universities presented papers showing how accounting can be used to, among other things:
· Calculate the rate of return investors will demand when deciding whether to buy a stock;
· Glean from a firm’s financial statement whether the company holds a competitive advantage over similar firms;
· Measure the anticipation effect that moves prices in the options markets as investors try to guess about vital information not yet known.
Peter Easton, director of the Center for Accounting Research and Education and Notre Dame Alumni Professor of Accountancy, said the time was right for an accounting conference focused on forecasting.
“It’s a core concern, yet we know so little about it.”
The event drew about 100 academic researchers from Europe, Asia, the United States and Canada. A call for papers earlier this year yielded 90 submissions, from which the six presented at the conference were selected.
The best-paper award went to Maria Ogneva of the Stanford University Graduate School of Business and Alex Nekrasov of the Merage School of Business at the University of California, Irvine. They described their method for using analysts’ earnings forecasts to predict the rate of return investors appear to demand from a stock and the stock’s growth rate. No well-accepted theoretical model exists to make such predictions, according to the paper’s discussant, Steven Monahan of the international business school known as INSEAD.
Questions and comments raised at the conference will be used to refine all six papers before their publication in a special issue of the Review of Accounting Studies.
In addition to the Center for Accounting Research and Education, the conference was sponsored by Springer Science+Media (publisher of the Review of Accounting Studies); Cambridge Business Publishers, BlackRock Asset Management and Morgan Stanley.