Effects of accounting techniques on the study of market power

Abstract

This study uses a time series analysis to test for the effects of alternative depreciation and inventory accounting techniques on the estimation of firm-level market power. The key finding is that while alternative inventory measurement techniques have a significant effect on the estimated coefficients of a firm level profit/structure model, depreciation techniques have an insignificant effect on these coefficients. This result is notable because previous researchers have focused exclusively on the biases due to accounting depreciation techniques, and failed to see that alternative inventory techniques have the potential for causing the more significant biases.