This article reports results of a field study which tested the descriptive validity of expectancy theory predictions about job performance and satisfaction in a public accounting environment. The correlations between overall job satisfaction and predicted performance were interpreted as indicating that the four expectance models were significant predictors of job satisfaction for the audit staff accountants. Results obtained were sufficiently dissimilar to those obtained in other settings so that the ability of the expectancy models to predict job performance levels in an accounting context was questioned. The study used a between subjects research design for testing expectancy theory predictions of work behavior. This design, in which expectancy valence scores are correlated with concurrent individuals, has rather convenient statistical properties and has been extensively employed. A within-subjects research design will be required in order to properly test the descriptive validity of expectancy.

[This note extends previous research on accounting method choice in the petroleum industry by examining the association between selected attributes of "successful efforts" firms and the decision to change to "full cost" accounting. Firms that changed to full cost are found to exhibit higher levels of financial risk (leverage) and exploration activity (capital expenditures) when compared to firms that retained successful efforts, and these differences are shown to predate full cost adoption by several years. Tests also indicate that the change to full cost is associated with concurrent increases in debt financing and exploration investment.]

This note extends previous research on accounting method choice in the petroleum industry by examining the association between selected attributes of "successful efforts" firms and the decision to change to "full cost" accounting. Firms that changed to full cost are found to exhibit higher levels of financial risk (leverage) and exploration activity (capital expenditures) when compared to firms that retained successful efforts, and these differences are shown to predate full cost adoption by several years. Tests also indicate that the change to full cost is associated with concurrent increases in debt financing and exploration investment.

[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.

We predict and find that accounting restatements that adversely affect shareholder wealth at the restating firm also induce share price declines among non-restating firms in the same industry. These share price declines are unrelated to changes in analysts' earnings forecasts, but instead seem to reflect investors' accounting quality concerns. Peer firms with high industry-adjusted accruals experience a more pronounced share price decline than do low-accrual firms. This accounting contagion effect is concentrated among revenue restatements by relatively large firms in the industry. We also find that investors impose a larger penalty on the stock prices of peer firms with high earnings and high accruals when peer and restating firms use the same external auditor. Our results are consistent with the notion that some accounting restatements cause investors to reassess the financial statement information previously released by non-restating firms.

We test conjectures about the determinants of materiality judgments by examining a financial reporting choice made by firms that discover errors in prior years' financial statements. From late 2004 to mid-2006, more than 250 U.S. firms uncovered and corrected operating lease accounting errors either by formal restatement—required for errors deemed material—or by a less visible current-period “catch-up” adjustment. We test the role of materiality considerations outlined in SAB No. 99 as well as factors outside authoritative guidance in explaining the correction method chosen. Although both quantitative and qualitative materiality considerations cited in the guidance explain a large portion of the variation in firms' error correction decisions, we find that the prior actions of other firms also appear to play a major role. We also find that clerical considerations, but not strategic disclosure concerns, help explain cross-sectional variation in the timing of firms' error correction announcements.