Knowledge that Transforms

Ramesh Chandra, Shane Moriarity, G. Lee Willinger, A Reexamination of the Power of Alternative Return-Generating Models and the Effect of Accounting for Cross-Sectional Dependencies in Event Studies, Journal of Accounting Research, Vol. 28, No. 2 (Autumn, 1990), pp. 398-408

Laureen A. Maines, The Effect of Forecast Redundancy on Judgments of a Consensus Forecast's Expected Accuracy, Journal of Accounting Research, Vol. 28, Studies on Judgment Issues in Accounting and Auditing (1990), pp. 29-47

Michael Gibbins, Alan Richardson, John Waterhouse, The Management of Corporate Financial Disclosure: Opportunism, Ritualism, Policies, and Processes, Journal of Accounting Research, Vol. 28, No. 1 (Spring, 1990), pp. 121-143

Agency model, Signaling, Auditing, Audit fee

Debt covenants, Financial distress, Covenant default, Shareholders

Understanding the role of accounting in intrafirm resource allocation problems' requires understanding its substitutes. If accounting is viewed as information production arising in response to inefficiencies caused by information voids,2 then substitutes for accounting are alternative ways to reduce these inefficiencies. The purpose of this paper is to explore the power of commitment to reduce inefficiencies in a repeated intrafirm resource allocation problem. In this way, we hope to take a step toward understanding commitment as a substitute for accounting. We build a model with inefficiencies due to information voids by assuming an owner of an investment project, who knows only a distri-

Voluntary Disclosure, Management forecasts, Screening, Signaling

Interim information, Earnings announcements, Stock returns, Information content

Information content, Nonearning numbers, Earnings predictors, Predictive ability