Knowledge that Transforms

Several hypotheses concerning pension funding strategy are tested in a cross-sectional regression model on a sample of 255 firms. Results are consistent with the following explanations: (1) finance incentives (tax benefits and financial slack) for high-level funding, (2) labor incentives for low-level funding, and (3) financial statement incentives relating to political costs for high-level funding and debt contracting costs for low-level funding. Pension funding strategy appears to be complex, involving tradeoffs between funding incentives. The nature of these interactions and tradeoffs remains to be clarified through future research.

The differential information hypothesis advanced by Atiase (1980) states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size. This study examines two corollaries of that hypothesis. First, security prices of large firms anticipate accounting earnings earlier than security prices of small firms. Second, for a given level of ‘unexpected’ earnings, the cumulative abnormal returns of small firms exceed those of large firms. The results are generally consistent with Atiase's hypothesis.

Beaver, Lambert and Morse (1980) employ a regression of percentage change in prices on percentage change in earnings in which data are grouped by the dependent variable. Reverse regression offers a more intuitive and direct way to assess the information content of security prices, the objective of Beaver et al. While grouping is asymptotically equivalent, reverse regression is a more efficient way of examining the incremental explanatory power of lagged values of percentage change in price with respect to accounting earnings.

Robert B. Thompson II, Chris Olsen, J. Richard Dietrich, Attributes of News about Firms: An Analysis of Firm-Specific News Reported in the Wall Street Journal Index, Journal of Accounting Research, Vol. 25, No. 2 (Autumn, 1987), pp. 245-274

Lawrence D. Brown, Gordon D. Richardson, Steven J. Schwager, An Information Interpretation of Financial Analyst Superiority in Forecasting Earnings, Journal of Accounting Research, Vol. 25, No. 1 (Spring, 1987), pp. 49-67

Expertise, Communication, Planning, Implementation

Executive compensation, M&A, Bidding CAR, Long-term performance plans

William R. Baber, Eugene H. Brooks, William E. Ricks, An Empirical Investigation of the Market for Audit Services in the Public Sector, Journal of Accounting Research, Vol. 25, No. 2 (Autumn, 1987), pp. 293-305

William N. Lanen, Robert E. Verrecchia, Operating Decisions and the Disclosure of Management Accounting Information, Journal of Accounting Research, Vol. 25, Studies on Stewardship Uses of Accounting Information (1987), pp. 165-189

Inventory accounting method, LIFO, Event dates, Announcement returns