[In a recent issue of The Accounting Review, Stone and Bublitz (S&B) [1984] report on the frequency of data collection errors for the 1981 FASB computer tape containing FAS 33 disclosures for 1979 and 1980. This paper extends their work by examining the problems encountered when using a subsequent version of that data base in conjunction with the Compustat and Value Line historical cost data bases. Failure of the data bank user to reconstruct the difference between historical cost and current cost amounts in the supplementary disclosures of a firm's annual report is designated as an error. Errors in income and depreciation expense for a filtered sample of 171 firms are reported for the years 1979 through 1982. An error rate for income in 1981 of 12.9 percent and error rates for depreciation ranging from 23.4 to 39.8 over the four years seem to suggest that manual checking of annual reports is necessary when using these amounts.]
[This study tests the proposition that the 20 percent ownership percentage criterion for application of the equity method influences firm investment decisions. A sample distribution of firm investment positions indicates an unusually heavy concentration of positions at or near 20 percent. The characteristics of 19 to 19.99 percent investees (carried at cost) are then contrasted with 20 to 20.99 percent investees (carried at equity) on dimensions of profitability and earnings covariability. The results suggest that the extent-of-holding dimension of firm investment decisions is influenced by the ownership criterion. This finding implies that the underlying standard (APB 18) has an economic consequence. This result should be of interest to accounting scholars, as well as of potential value to the FASB as it reconsiders accounting standards for consolidations and the equity method.]
[Prior studies have ranked doctoral programs in accounting on the basis of various input and output criteria. This study ranks doctoral programs on the basis of the publication productivity of their graduates. The primary advantage of this study over prior studies is that it adjusts the publication productivity measures of the schools to reflect differences in the number of doctoral alumni as well as the age of the doctoral program.]
[This study uses interference theory to test the hypothesis that exposure to cost and income measures causes fixated responses in a decision-making setting where market value is the appropriate response. These fixated responses have been observed in both the functional fixation and prospect theory literatures and are related to materiality and certainty. The number of accounting courses subjects had completed was used as a surrogate for amount of exposure to cost and income. Approximately 50 percent of the subjects exhibited evidence of fixation on either income or cost measures. Materiality, but not certainty, had an impact on the fixation. Exposure to accounting courses was not related to this fixation. In fact, weak support was found for accounting as an aid in encoding the correct (i.e., market value) response. Age was the only variable positively correlated with the improper use of cost and income data.]
[In recent years, there has been renewed interest in cash flows. This paper describes empirical relationships between signals provided by accrual earnings and various measures of "cash flow" (CF). We include among definitions of CF both "traditional" measures that include simple adjustments to earnings data (i.e., net income plus depreciation and amortization, and working capital from operations) as well as "alternative" measures that incorporate more extensive adjustments (defined in the paper). Evidence is presented on three issues. First, the correlations among various measures of CF are examined to determine whether the signal provided by a given CF measure differs from the signal provided by others. Second, various measures of CF are correlated with earnings to lend evidence on whether the CF and earnings signals are similar. Third, we provide evidence on the ability of earnings and cash flow measures to forecast one period and two period ahead cash flows and, in so doing, we examine the FASB's assertions that earnings are superior to CF in predicting future CF. Results can be summarized as follows. First, the observed correlations between traditional cash flow measures and alternative CF measures that incorporate more extensive adjustments are low. Second, the correlations between alternative measures of CF and earnings are low while the correlations between traditional measures of CF and earnings are high. These first two results are consistent with earnings and alternative measures of CF that incorporate more extensive adjustments conveying different signals. Finally, for four out of five cash flow variables, the results are consistent with the hypothesis that random walk models predict CF as well as (and often better than) models based on other flow variables. An exception to this general result is that net income plus depreciation and amortization and working capital from operations appear to be the best predictors of cash flow from operations. Overall, these results are not consistent with the FASB's statements that earnings numbers provide better forecasts of future cash flows than do cash flow numbers.]
[This study tests whether there is a relationship between the lobbying activities of firms on a proposed accounting standard (FAS No. 19) and the trading activities of corporate insiders. We find that, on average, insiders of full cost firms that lobbied were net sellers and successful efforts lobbiers were net buyers, while non-lobbiers took opposite positions. The results are consistent with the hypothesis that lobbying activity is correlated with management's expected wealth. The results are also consistent with comment letters to the FASB having information value, since insiders trade on their personal account in the same direction their firms lobby. Alternatively, the results can be interpreted as support for the conclusion of Larcker, Reder and Simon [1983] that FAS No. 19 was perceived to have economic consequences.]
[This study uses two representative cross-sectional valuation models to examine trends in the explanatory power of given sets of financial data for security prices. The primary objective is to examine joint hypotheses on the validity of valuation models and the manner in which financial statement data are assimilated into the information set reflected in prices, and subsequently replaced by other data. The observed trends support the informativeness trend hypotheses, suggesting that the valuation models studied capture important elements of the security pricing relationship. An examination of intra-year movements showed substantial variation around the trends, suggesting the presence of temporary influences on model explanatory power. Possible explanations for these phenomena are offered.]
[According to the principle of user primacy, the interests of users of financial reports take priority over the interests of preparers of financial reports. When applied to the activities of a standard setter for corporate financial reporting, user primacy is a constitutional claim, stating a general principle for the resolution of conflicts. It is controversial, because it is incompatible with views that standard setting is a collective choice process, where the interests (preferences) of all parties are to count equally. An analysis of the logical foundations of the principle is provided, based on recent work in ethics and social and political philosophy. User primacy is a distributional principle governing the relationship between users and managers. A theoretical framework for the rational choice of a distributional principle governing the disclosure of information in the securities market is provided. The conditions under which a securities market-which includes in its basic structure a standard setter to implement the user primacy principle-would be chosen by rational, disinterested securities market agents are analyzed. A standard setter would be established to enforce user primacy, thereby redressing an imbalance between investors (users) and managers. By acting in accordance with this principle, the standard setter aids all securities market agents in exploiting the potential trading gains provided by such a market. At the same time, investors are protected from possible losses arising from the basic relationship between them and managers of widely held corporations. The analysis is applied to two versions of the user primacy principle prominent in the professional standard-setting literature. Although the analysis is not intended to advocate user primacy, a clear and complete statement of the principle is proposed as a guide to standard-setting bodies.]
[Since various accounting costs are used in product pricing decisions, this paper identifies conditions under which a particular product cost is appropriate for use in product pricing. The approach used is to compare the output price selected using three accounting costs commonly used in pricing with the output price selected by a utility-maximizing decision maker conducting a complete analysis. This comparison indicates conditions under which each accounting cost leads to prices closest to those obtained after a complete analysis and is used to develop testable hypotheses about costing method use.]
[The data definitions in the order entry modules of 12 wholesale distribution software packages were studied to determine whether (a) their high-level semantics complied with McCarthy's [1982] REA accounting model; (b) their detailed semantics manifested a common underlying accounting model; (c) their semantics could be modeled adequately using the entity-relationship modeling technique; and (d) their record structures followed the prescriptions of normalization theory. The results indicate that the major elements of the REA model are incorporated in the packages. However, they differ semantically in several important areas that could not be detected by the REA model because it is too general. Use of the entity-relationship modeling technique to represent the semantics of the packages was relatively straightforward. In terms of record structures, the packages conform with the prescriptions of normalization theory to a large extent, although there are still several violations of normal form.]