A systematic revision of accounting standards and disclosure policy on the basis of evidence obtained from event studies conducted in an efficient stock market is shown to be an ineffective means of maximizing shareholder wealth. Résumé. Une réision systématique des normes de comptabilité et des conventions relatives à la présentation de l'information à partir de l'information recueillie à la suite d'études d'événements menées dans un marché boursier efficient se révèle inefficace lorsqu'il s'agit de maximiser la richesse des actionnaires.

In this paper, we analyze how financial analysts generate information, make decisions about firm coverage, and try to maintain their forecasting accuracy after the passage of Regulation Fair Disclosure (“Reg FD”). Using the model developed by Barron, Kim, Lim, and Stevens 1998, we find that analysts are investing more effort in idiosyncratic information discovery. In order to do this, individual analysts appear to be reducing coverage for well‐followed firms while increasing coverage of firms that were less followed prior to Reg FD. Analysts who had preferential links with firms that they covered, such as analysts from large brokerage houses, tend to have greater forecast accuracy in the pre‐FD period. However, these analysts are unable to sustain their forecasting superiority in the post‐FD period, which suggests that there has been a leveling of the information playing field among analysts. Overall, our results reflect a trend toward greater reliance on idiosyncratic information discovery on part of the financial analysts.

A valuation system partitions the set of goods to be valued into multiple disjoint subsets and the current value of the goods is estimated via price indexes covering these subsets. Efficient valuation systems yield a relatively small economy‐wide average of mean squared errors with respect to the true total current cost of the goods. Several algorithms have been designed to search for efficient valuation systems. These algorithms, however, do not take advantage of the information contained in the characteristic parameters of the goods to be valued. We present the design and test of a search algorithm that is substantially more efficient than those in the literature. The relative efficiency of the algorithm is gained through the use of information contained in the weights, the expected values, and the variance‐covariance structure of the price changes of the goods. Résumé. Un système d'évaluation subdivise l'ensemble des biens à être évalués en plusieurs sous‐ensembles disjoints et la valeur actuelle des biens est estimée grâce à des indices de prix couvrant ces sous‐ensembles. Des systèmes d'évaluation efficaces produisent, pour l'ensemble de l'économie, une moyenne relativement faible des erreurs moyennes au carré, par rapport au coût actuel réel total des biens. Plusieurs algorithmes ont été conçus pour découvrir des systèmes d'évaluation efficaces. Toutefois, ces algorithmes n'intègrent pas l'information que renferment les paramètres caractérisant les biens à évaluer. Nous présentons la conception et le test d'un algorithme de recherche qui s'avère considérablement plus efficace que ceux mentionnés dans les recherches antérieures. L'efficacité relative de cet algorithme est obtenue grâce à l'intégration de l'information contenue dans les pondérations, les valeurs espérées et la structure de variance‐covariance des fluctuations de prix des biens.

We investigated the benefits (more accurate valuations) obtained from the use of more specific measures, such as the use of specific price indexes, rather than a general price index, to approximate the current value of historical cost accounting numbers. We found the valuation accuracy function for the Canadian economy to be highly convex; that is, marginal gains in accuracy decline sharply as the specificity of price indexes increases. A few broad price indexes yield a relatively accurate valuation of assets, and little accuracy is gained by using more specific price indexes. These results are consistent with empirical studies conducted in the United States (Hall 1982; Sunder and Way mire 1983; Shriver 1986) and Australia (Tippett 1987). These results suggest that Canadian standard setters may be able to achieve their objective of getting relatively accurate valuations for industrial assets by adopting a simple and verifiable price index methodology, rather than resorting to costly and complicated computations such as those required by Canadian Institute of Chartered Accountants (CICA) Handbook Section 4510. Résumé. Les auteurs étudient les avantages (évaluations plus exactes) de l'utilisation plus grande de mesures spécifiques — comme celles d'indices des prix spécifiques plutôt que d'un indice des prix général — pour obtenir la valeur actuelle approximative des données produites par la comptabilité au coût d'origine. Ils constatent que la fonction d'exactitude de l'évaluation pour l'économie canadienne présente une grande convexité, c'est‐à‐dire que les gains marginaux en exactitude déclinent abruptement lorsque la spécificité des indices de prix augmente. Quelques grands indices des prix livrent une évaluation relativement exacte de l'actif, et l'on gagne peu d'exactitude en utilisant des indices des prix plus spécifiques. Ces résultats sont conformes aux études empiriques réalisées aux États‐Unis (Hall, 1982; Sunder et Waymire, 1983; Shriver, 1986) et en Australie (Tippett, 1987). Les résultats portent à croire que les responsables canadiens de la normalisation pourraient être en mesure d'atteindre leur objectif d'évaluations relativement exactes, dans le cas des actifs industriels, en adoptant une méthodologie d'indice des prix simple et verifiable plutôt que de recourir à des calculs onéreux et complexes comme ceux qu'exige le chapitre 4510 du Manuel de l'I.C.C.A.

We study the role of borrowers’ balance sheet conservatism (i.e., conservatism in asset values) in debt contract design. We find that borrowing costs are decreasing in the degree of balance sheet conservatism, and this effect is stronger for firms with lower credit quality. This is consistent with balance sheet conservatism reducing lenders’ uncertainty about the liquidation value of assets, thus facilitating the ex ante screening of borrowers. We predict that better ex ante screening also reduces the need for ex post monitoring, and find that balance sheet conservatism is associated with less restrictive covenant terms. Further, we find that asymmetric timeliness in earnings is associated with lower borrowing costs only when balance sheet conservatism is not high. This result suggests that lenders appear to recognize the constraining effect of high balance sheet conservatism on future conservatism in earnings.

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