Knowledge that Transforms

[This study investigates the impact of student internships on subsequent academic performance. The post-internship course performance of students with internship experience was compared to that of a group of noninterns (matched on grade-point average and hours of coursework completed prior to the internship). Average performance across all courses did not differ significantly between the two groups. Analysis of performance in particular subject areas and courses suggests a tendency for interns to focus their efforts on courses most closely related to their chosen career. However, only in auditing coursework (where substantive knowledge gained from their internship experience should be most applicable) was the performance of interns significantly better than that of the noninterns.]

[Research and development limited partnerships are a relatively recent alternative to the more traditional debt and equity funding of research and development costs. This paper provides an economic and empirical analysis of the factors that may motivate firms to select limited partnerships as a source of funding. The analysis uses a framework that relies on extant capital structure models and agency theory to derive empirically testable hypotheses. Results of the empirical tests are consistent with both a tax motivation and, to a lesser extent, an off-balance-sheet motivation for firms to use a limited partnership to fund their research and development costs. More generally, the analysis and results offer support for the clientele tax models of Miller [1977] and DeAngelo and Masulis [1980], and the analysis of taxes by Scholes and Wolfson [1984] and Majd and Myers [1985]. The off-balance-sheet results offer some support for agency model predictions.]

[In this study it is hypothesized that various firm-specific factors provide incentives for management to use accounting choices to smooth earnings, and that as a result, smoothing behavior varies across firms. Accounting changes are investigated as a smoothing device. T-tests and regression analysis are used to test the relation between smoothing and a set of explanatory variables. Findings provide evidence that smoothing is associated with firm size, the existence of bonus compensation plans, and the divergence of actual earnings from expectations. In addition, findings indicate that smoothing by accounting changes is associated with the impact of the accounting change on the level of earnings. This is consistent with management recognizing and making trade-offs between the effect of accounting choices on both income levels and income variability.]

[This case study examines in detail the changes that were induced in a modern cost accounting system by the introduction and evolution of Just-In-Time (JIT) manufacturing. It is intended to do more problem finding than problem solving, in the hope of stimulating the formulation of hypotheses for further study. The project initially sought to detect whether Hewlett-Packard's JIT manufacturing experience had spawned new approaches to cost accounting or had uncovered fundamental weaknesses in traditional procedures. The most promising research opportunities to emerge, however, concern the changing relations between cost accounting, product design, process control, and quality assurance.]

[This study proposes a new method for approximating service department costs when reciprocal services exist. Analytical results are provided demonstrating that, under certain conditions, the method produces approximations that converge to allocations under the theoretically correct reciprocal method. Numerical results are provided demonstrating that the proposed method is more accurate than the two simplified allocation procedures, the direct and step methods, even when nontrivial parameter estimation errors are assumed. These results, based on sample statistics for hypothetical firm data, suggest that many real-world firms may be able to use the proposed method to make more accurate marginal cost assessments and, therefore, to improve their service-related operating decisions.]

[This study hypothesizes and finds that both the magnitude and duration of the trading volume reaction to quarterly earnings announcements are increasing functions of unexpected earnings and decreasing functions of a factor affecting the availability of predisclosure information: firm size. In contrast to unexpected earnings, which are not known until earnings are actually announced, firm size can be assessed prior to the announcement. Evidence that market reactions to quarterly earnings announcements differ systematically with a variable such as firm size, whose value is known before the announcement, may be relevant to policymakers in evaluating the potential benefits of differential accounting disclosure requirements (especially those based on firm size). Additional analysis, however, also confirms the incremental value of the actual earnings disclosures: even after controlling for the already known firm size, unexpected earnings are still positively related to the magnitude and duration of the trading volume reaction.]

[An experiment was conducted where practicing financial analysts provided risk and return judgments on 30 equity securities. The ability of financial analysts to subjectively express the relative emphasis they place on the available cues when generating their judgment evaluations was assessed by three alternative measurement methods. The results indicate the analysts exhibited a relatively high degree of self-insight since their subjective indications of cue importance were consistent with the models and outputs of their judgment policies.]

[This paper investigates the extent to which models based on financial and market variables predict auditors' decisions to issue qualified audit reports in situations involving contingencies or uncertainties. A probit model is developed with the dependent variable indicating whether the firm received a qualified opinion, and the independent variables representing publicly available financial and market variables. The estimated model distinguishes between unqualified (clean) opinions and first-time qualifications and between types of qualifications (e.g., going concern, litigation, asset realizing, and multiple qualifications) in the year of the qualification, for both an estimation sample and a holdout sample. The predictive accuracy of the estimated model is evaluated in terms of misclassification costs for alternative costs of type I and type II errors and for specific prior probabilities of qualified and clean opinions.]

[This paper examines the marginal contribution of scores on the AICPA level I achievement test and aptitude test for predicting the performance of students in upper division courses. Three performance measures were studied: grades in all upper division courses, grades in upper division accounting courses, and a binary variable reflecting whether a student made a C or below on an upper division accounting course. Results for each of these measures indicated that the AICPA scores did not improve significantly the predictive ability of models that included lower division grades. Several limitations of the study are described.]