Alvin Martin, [Discussion of An Empirical Test of the Relevance of Accounting Information for Investment Decisions]: A Reply, Journal of Accounting Research, Vol. 9, Empirical Research in Accounting: Selected Studies 1971 (1971), pp. 45-49
Alvin Martin, An Empirical Test of the Relevance of Accounting Information for Investment Decisions, Journal of Accounting Research, Vol. 9, Empirical Research in Accounting: Selected Studies 1971 (1971), pp. 1-31
Many corporations now provide their shareholders with information during the course of the financial year. Probably one of the most important of these news releases is the interim income statement. This statement may cover only a specific segment of the financial year (e.g., a quarter) or it may include the results of the year to date. However, several issues have to be resolved when income is being measured for periods of time which are shorter than a year-e.g., seasonal variations, inventory valuations and writedowns, the allocation of nonrecurring transactions and income taxes. The above mentioned problems are but a few of those which are encountered in the process of interim income measurement. While these and other issues relevant to interim income measurement have been discussed elsewhere,' no research has been conducted to inquire to what extent, if any, the use of alternative interim income measurement techniques will affect (1) the absolute size of reported results for an interim period, (2) the pattern of interim results for the entire financial year, and (3) interyear comparisons of interim data. This study is addressed to these issues. The approach used here is similar to that used by Davidson and Kohl-
Stallman investigated the effect of allocating or not allocating common costs as these allocations are reflected in divisional income calculations. Questionnaire packets, containing two sets of corporate data and a request for numerous judgments, were sent to a random sample of members on the rosters of the Financial Analysts Federation and the Institute of Chartered Financial Analysts. A total of 121 respondents provided analytically usable data (for a response rate of 11.33 percent). With regards to the sample, McDonald suggested that, if the experiment is repeated, some less sophisticated inventors should be included. 2 The reported results were based on the respondents' judgments of an estimated long-run investment value for a share of stock. Analysis revealed that statistically significant differences in stock valuation esti-