Knowledge that Transforms

This article studies the case of market reactions to accounting policy deliberations. The purpose of the article paper is to point out several shortcomings of a study by some researchers and to suggest an alternative framework for testing for potential market reactions to a series of events such as FASB deliberations on inflation accounting. The general research approach employed by researchers is premised on the argument that market reactions to FASB inflation accounting deliberations can be determined, appropriately, by examining the association between abnormal returns of firms for various announcements. Perhaps the most significant limitations stems from the fact that the correlation approach is an awkward, if not inappropriate methodology for application to research problems where the number of variates. The exclusive reliance on that methodology by researchers, therefore, is surprising since there exist alternative research paradigms which, although not free of shortcomings, avoid some problems.

Municipal bond rating changes can have significant consequences for both borrowers and investors. Multivariate discriminant analysis (MDA) was used to examine whether financial ratios could discriminate between cities that had their ratings upgraded or downgraded from an A rating. In addition, both the upgraded and the downgraded groups of cities were matched, using a paired sample design with a control group to examine the predictive ability of fiscal information. Fiscal variables do appear to be associated with rating revisions, in addition, it appears that rating revisions are more closely associated with operating working capital flow than the "total flow of resources" statement generated by current generally accepted accounting principles (GAAP).

This study examines the role of the personality variable, locus of control, as a moderator of the relationship between budgetary participation and managerial performance. The results of a laboratory study employing two separate subject groups--undergraduate accounting students and managers from a large manufacturing company--show a statistically significant interaction between participation and locus of control affecting performance. Budgetary participation was found to have a positive effect on individuals who feel they have a large degree of control over their destiny ("internals" on the locus of control scale), while having a negative effect on those individuals who feel that their destinies are controlled by luck, chance, or fate ("externals" on the locus of control scale). The results are discussed and possible applications in the areas of job redesign and personnel selection and placement are considered.