Households as Corporate Firms: Constructing Financial Statements from Integrated Household Surveys

70 Pages Posted: 27 Jun 2006  

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy

Robert M. Townsend

MIT - Department of Economics

Date Written: June 12, 2006

Abstract

We use and modify the rigorous standards of corporate financial accounting to create the balance sheet, income statement, and statement of cash flows for households in developing countries. The purpose is to better measure productivity, risk, financing, and portfolio management in an analysis of high frequency panel data. What emerges is an analogy between households and corporate firms. For example, household wealth can be viewed as equity, consumption as dividends, gifts as equity issue, and the household budget constraint as the firm cash flow constraint. The accounts also allow us to distinguish savings as a budget surplus as in the cash flow statement versus savings as wealth accumulation as in the balance sheet. We show how to use a high frequency household survey that contains a series of detailed questions to create the line items of each of the financial statements, and we propose accounting procedures to deal with nontrivial issues: multiperiod production activities, storage, inventories, livestock aging, loan repayments, barter transactions, gifts and transfers, owner-produced consumption and other intra-household transactions. We then show how to use the accounts to analyze the rate of return to production activities, the debt to wealth ratio, and the movement of both consumption and investment to income. Finally, we show how to use the statement of cash flows to decompose and quantify household budget deficits into their various financing components and show how to apply the balance sheet to study household portfolio management. The conceptualization of this paper has important implications for measurement, questionnaire design, the modeling of household decisions, and the analysis of panel data.

Keywords: financial accounting, development economics, households, survey methods, measurement, risk, rates of return, liquidity

JEL Classification: O12, O16, G30, E01, M41

Suggested Citation

Samphantharak, Krislert and Townsend, Robert M., Households as Corporate Firms: Constructing Financial Statements from Integrated Household Surveys (June 12, 2006). Available at SSRN: https://ssrn.com/abstract=911964 or http://dx.doi.org/10.2139/ssrn.911964

Krislert Samphantharak (Contact Author)

University of California, San Diego - School of Global Policy and Strategy ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States
858-534-3939 (Fax)

Robert M. Townsend

MIT - Department of Economics ( email )

Bldg. E52-252c
50 Memorial Drive
Cambridge, MA 02142
United States
617-452-3722 (Phone)
617-253-1330 (Fax)

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