Knowledge that Transforms

This study considers the impact of capital structure change announcements on security prices. Statistically significant price adjustments in firms' common stock, preferred stock and debt related to these announcements are documented and alternative causes for these price changes are examined. The evidence is consistent with both corporate tax and wealth redistribution effects. There is also evidence that firms make decisions which do not maximize stockholder wealth. In addition, a new approach to testing the significance of public announcements on security returns is presented.

In October 1974, the Financial Accounting Standards Board issued FASB Statement No. 2, Accounting for Research and Development Costs (henceforth FAS2). The essence of the mandated accounting treatment is stated in paragraph 12 of the Statement: All research and development [R&D] costs encompassed by this Statement shall be charged to expense when incurred. This accounting treatment was contrary to the practice followed by many firms which capitalized and amortized R&D costs. The Board's definition of R&D costs is quite inclusive following, with some modifications, the commonly used interpretation by the National Science Foundation. The Board defines R&D, in paragraph 8, as follows:

Auditing, Audit fees, Big Eight, Competitiveness

Financial ratios, Bankruptcy, Corporate failure, Conditional logit model

Internal control system, Auditing, Computer controls, Free recall protocol

Inventories, LIFO, Inventories orders, Tax liabilities

Gary C. Biddle, [Discussion of Accounting Methods and Management Decisions: The Case of Inventory Costing and Inventory Policy]: A Reply, Journal of Accounting Research, Vol. 18, Studies on Economic Consequences of Financial and Managerial Accounting: Effects on Corporate Incentives and Decisions (1980), pp. 292-295

Disclosures, Line-of-business reporting, Segment reporting, Portfolio returns

Human information processing, Information choice, Decision making, Lens model