During an inflationary period, changes to the last in, first out (LIFO) method of inventory valuation generally result in reduction of reported earnings and in deferment of tax payments. If the investors rely on the reported earnings, the stock price of the firms which change to the LIFO method will decrease and if they rely on the economic value of the firms, the stock price will increase. Several studies of the relationship between accounting changes and stock price behavior have been conducted by using a research design, as of April 1975. The design involves the use of the market model to isolate the stock price changes associated with specific events from the market-wide price changes. The article attempts to measure the association between the accounting and price changes by abstracting the effect of risk changes. This is accomplished by estimating the time path of the relative risk of stocks during the months surrounding the date of accounting change. The problem of estimating the relative risk of stocks when it is not constant is considered in another section of the article. Conclusions of the study about the relationship between stock price behavior and accounting changes are presented in the last section.

Exchange valuation rules, Accuracy, Asset valuation, Price-level adjusted accounting

Shyam Sunder, Gregory Waymire, Marginal Gains in Accuracy of Valuation from Increasingly Specific Price Indexes: Empirical Evidence for the U.S. Economy, Journal of Accounting Research, Vol. 21, No. 2 (Autumn, 1983), pp. 565-580

Synthesis

The comparative ability of valuation rules using economy-weighted versus industry-weighted price indexes to estimate the unobserved economic value of a basket of assets in modelled. Industry-weighted indexes do not necessarily provide valuations of higher accuracy than economy-weighted indexes. Dominance depends on (1) the relative magnitude of the mean and variability of price changes and (2) the magnitude of errors of measurement in the current price data. Larger measurement errors favor economy-weighted indexes; larger mean and variability of prices changes favor industry-weighted indexes.

Stock market Disciplining, Rational expectations model, Managerial decision making

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.