[This paper examines whether accumulated postretirement benefit obligations (APBO) are useful in assessing equity market values. Using an extension of the econometric procedures outlined in Barth (1991), we use observed market capitalization rates on accounting measures to estimate "noise ratios" defined as the ratio of measurement error variance to the total variance of the accounting measure. Differences in estimated noise ratios are then used to make inferences about the relative reliability of APBO and pension liability measures. We find that APBO amounts are marginally significant in explaining cross-sectional differences in equity values, but are capitalized at a much lower rate than pension obligations. Consistent with predicted differences in reliability, the estimated noise ratio for APBO is significantly greater than that for pension obligations. Moreover, we find estimated APBO noise ratios vary predictably across firms as a function of the retiree/active employee ratio and the likelihood of health care benefit reductions.]

This paper examines whether accumulated postretirement benefit obligations (APBO) are useful in assessing equity market values. Using an extension of the econometric procedures outlined in Barth (1991), we use observed market capitalization rates on accounting measures to estimate "noise ratios" defined as the ratio of measurement error variance to the total variance of the accounting measure. Differences in estimated noise ratios are then used to make inferences about the relative reliability of APBO and pension liability measures. We find that APBO amounts are marginally significant in explaining cross-sectional differences in equity values, but are capitalized at a much lower rate than pension obligations. Consistent with predicted differences in reliability, the estimated noise ratio for APBO is significantly greater than that for pension obligations. Moreover, we find estimated APBO noise ratios vary predictably across firms as a function of the retiree/active employee ratio and the likelihood of health care benefit reductions.

Stock dividends which increase outstanding shares by less than 25 percent require a transfer from retained earnings of the market value of the new shares, a much larger transfer than that required for stock dividends of 25 percent or more. Choosing a distribution factor near, but below, 25 percent may be an indication of management optimism that future income will replenish retained earnings, avoiding constraints on future cash distributions. In this study, firms declaring 20 percent and 25 percent stock dividends are compared. The 20 percent stock dividend firms exhibit significantly greater announcement-period abnormal returns and significantly greater post-declaration cash dividend growth. These effects are greatest for firms incorporated in states where the level of retained earnings more strictly constrains the payment of cash dividends.

[Stock dividends which increase outstanding shares by less than 25 percent require a transfer from retained earnings of the market value of the new shares, a much larger transfer than that required for stock dividends of 25 percent or more. Choosing a distribution factor near, but below, 25 percent may be an indication of management optimism that future income will replenish retained earnings, avoiding constraints on future cash distributions. In this study, firms declaring 20 percent and 25 percent stock dividends are compared. The 20 percent stock dividend firms exhibit significantly greater announcement-period abnormal returns and significantly greater post-declaration cash dividend growth. These effects are greatest for firms incorporated in states where the level of retained earnings more strictly constrains the payment of cash dividends.]

[This paper examines the relationship between the incidence of litigation events with potentially large damage awards and managers' accounting choices. We argue that the size of damage awards is a function of reported net income and net worth, and that this relationship provides management an incentive to manipulate accounting numbers. Our results indicate that managers of oil firms facing potentially large damage awards choose income decreasing non-working capital accruals relative to managers of other oil firms. Further, the results indicate that the management of these firms makes accounting choices that result in lower non-working capital accruals during the litigation period than in other years. These negative non-working capital accruals appear to result from the under-estimation of new reserves.]

[This paper reports the results of an experiment that examines the influence of uncertainty about the probability that a future loss will occur ("ambiguity") on auditors' and financial statement users' judgments about appropriate reference to contingent losses in audit reports. Application of Einhorn and Hogarth's (1985) ambiguity model suggests that, with respect to losses of low (high) probability, both auditors and users will act as if an ambiguous probability of loss is higher (lower) than a precise probability of the same magnitude, thus demonstrating a conservative (unconservative) reaction to ambiguity. In addition, since auditors may jeopardize client relations when they unnecessarily make audit report reference to contingent losses, auditors may react less conservatively to ambiguity than do users. The results of the experiment support these predictions.]

This paper reports the results of an experiment that examines the influence of uncertainty about the probability that a future loss will occur ("ambiguity") on auditors and financial statement users' judgments about appropriate reference to contingent losses in audit reports. Application of Einhorn and Hogarth's (1985) ambiguity model suggests that, with respect to losses of tow (high) probability, both auditors and users will act as if an ambiguous probability of loss is higher (lower) than a precise probability of the same magnitude, thus demonstrating a conservative (unconservative) reaction to ambiguity. In addition, since auditors may jeopardize client relations when they unnecessarily make audit report reference to contingent losses, auditors may react less conservatively to ambiguity than do users. The results of the experiment support these predictions.

This paper reports the results of an experiment that examines the influenceof uncertaintyabouttheprobabilitythatafuturelosswilloccur (ambiguity) on auditors' and financial statement users' judgments about appropriate reference to contingent losses in audit reports. Application of Einhorn and Hogarth's (1985) ambiguity model suggests that, with respect to losses of low (high) probability, both auditors and users will act as if an ambiguous probability of loss is higher (lower) than a precise probability of the same magnitude, thus demonstrating a conservative (unconservative) reaction to ambiguity. In addition, since auditors may jeopardize client relations when they unnecessarily make audit report reference to contingent losses, auditors may react less conservatively to ambiguity than do users. The results of the experiment support these predictions.

This paper examines the relationship between the incidence of litigation events with potentially large damage awards and managers' accounting choices. We argue that the size of damage awards is a function of reported net income and net worth, and that this relationship provides management an incentive to manipulate accounting numbers. Our results indicate that managers of oil firms facing potentially large damage awards choose income decreasing non-working capital accruals relative to managers of other oil firms. Further, the results indicate that the management of these firms makes accounting choices that result in lower non-working capital accruals during the litigation period than in other years. These negative non-working capital accruals appear to result from the under-estimation of new reserves.