Following a five year moratorium on adoption of interest capitalization by the SEC, the Financial Accounting Standards Board issued SFAS No. 34 mandating that firms previously writing off interest charges related to the construction of assets change to capitalizing those charges. The purpose of this study is to analyze the impact of this change in terms of the security market's reactions both to policy announcements leading up to the promulgation of SFAS No. 34, and to earnings announcements following implementation by affected companies. Significant average market reactions are indicated for two of ten policy announcements before the effects of firm size are considered; however, significance disappears when those effects are removed from excess returns. Although a bias is detected in the forecasts of analysts consistent with less than full revision to include the earnings impact, there is little evidence of market reactions to announcements of those earnings. Résumé. Après un moratoire de cinq ans sur l'adoption de la capitalisation de l'intérêt par la S.E.C., le Financial Accounting Standards Board a émis le bulletin numéro 34 qui demande aux entreprises qui passaient aux dépenses les charges d'intérêts reliées à la construction d'actifs, de les capitaliser. L'objectif de cette étude, est d'analyser l'impact de ce changement (en termes des réactions du marché des valeurs) aux annonces de politiques qui ont conduit à la promulgation du bulletin 34 et aux annonces de bénéfices qui ont suivi l'implantation pour les compagnies touchées. Les réactions du marché en moyenne sont significatives pour deux des dix annonces de politiques, avant de prendre en considération les effets de l'ampleur de la firme; cependant, ce n'est plus significatif lorsque ces effets sont retranchés des rendements excédentaires. Quoiqu'un biais soit détecté dans les prévisions des analystes, en accord avec une révision moins que complète pour inclure l'impact des bénéfices, il y a peu d'évidence des réactions du marché aux annonces de ces bénéfices.

This paper presents a model of an entrepreneur's acquisition and voluntary disclosure of precision information as a supplement to primary disclosure of an estimate of a tradable asset's value. Our analysis shows that equilibrium disclosure can be characterized by four regions. For estimates above (below) the prior expectation of the asset value, the entrepreneur discloses only high (low) precision information. The main idea is to enhance (diminish) confidence in estimates that improve upon (detract from) prior beliefs. We further show that the entrepreneur over-invests in the acquisition of precision information due to the option value of discretion over disclosure.

This paper provides a model in which audited reports are valuable to entrepreneurs who have private information and seek to share risks with investors. A distinctive feature of the model is that the choice of auditor and the resulting audited report provide partial information about the entrepreneur's private information, and he resolves all remaining investor uncertainty by signalling with retained ownership. The value of an audit is increasing in audit quality and the firm-specific risk faced by the entrepreneur and is a nondecreasing function of the entrepreneur's expectations about the future value of the firm.

In this paper, we examine the welfare effects of pre-production commitments made by firms competing in oligopoly markets and disclosure of such commitments. By commitments we refer to any device that provides a strategic incentive to alter production choices. Examples include forward contracts, capital structure, research and development investment, terms of compensation, and cost allocation. If the only purpose underlying commitment is to gain a strategic advantage in product market competition, then the result with disclosure can be characterized by Stackelberg warfare. Many potential commitments have non-strategic effects, implying a trade-off when optimizing, with imperfect achievement of both strategic (deterring rival production) and non-strategic goals. However, given disclosure, we show that in the limit as the number of commitment devices becomes large, firms achieve full Stackelberg warfare and total realization of non-strategic goals. Disclosure in this context is social welfare enhancing.

[Recently, management accountants have focussed attention on the appropriate treatment of costs associated with resources committed to support activities which do not vary proportionally to production once initial capacities have been set. In one typical case, it is assumed that costs of committed resources will be incurred irrespective of actual usage, and increasing initial capacities to accommodate unexpected demand involves penalties above normal costs. There are at least two important issues that arise in such a case: (1) how should costs of resources committed to, or subsequently required by, support activities enter into pricing and capacity decisions, and (2) what information should the accounting system provide to marketing and production in order to implement those decisions. Our objective in this paper is to address these two issues. The basic tension which underlies both pricing and capacity decisions is between the nonrecoverable cost of adding capacity before demand becomes known, and the expected penalty-adjusted cost of doing so after demand becomes known. In regard to the first issue, we find in our setting that only normal cost enters into pricing rules established at the time initial capacities are set. (Penalties for exceeding initial capacities are implicit in that for the marginal unit of each activity, normal cost equals expected penalty-adjusted cost.) Findings on the second issue are that the product costing system can be designed without knowledge of demand parameters; the marketing manager only requires activity-based unit costs provided by that system, along with knowledge of demand parameters, to make pricing decisions which are optimal from a firm-wide standpoint; and the production manager only needs expected demand from marketing, along with knowledge of the distribution of random demand shocks, and cost and production parameters, to make initial capacity decisions. The economic sufficiency of the activity-based unit cost in pricing decisions is in the spirit of Amershi et al. (1989), while the equivalence of marginal cost, normal cost, and expected penalty-adjusted cost of under-capacity bear similarity to results in studies by Miller and Buckman (1987), Whang (1989) and Hansen and Magee (1993). The main distinctions between these studies and ours lie in assumptions regarding production functions, the nature of information asymmetries, and our incorporation of pricing decisions as well as capacity decisions.]

This paper reassesses the Information content of annual earnings announcements using errors in analyst forecasts published within one week of those announcements as the proxy for unexpected earnings. In addition to the use of analyst forecasts near to the announcement date, features which distinguish this study from earlier work include: a more precise dating of earnings announcements; a comparison of analyst forecast errors and changes in fourth-quarter earnings as proxies for unexpected earnings; tests of unusual variability in excess returns at the time of earnings announcements with the influence of forecast errors removed; a separation of early and late disclosers within an industry; and an examination of the properties of forecast range as an ex ante measure of earnings predictability. We conclude that: provided that analyst forecast errors measure unexpected earnings, annual earnings announcements have information content even when compared to market expectations very near to those announcements; analyst forecast errors do not dominate fourth-quarter changes as a proxy for unexpected earnings; other information released concurrently with earnings announcements appears to have significant pricing implications; there is greater information content in earnings announcements of early disclosers than of late disclosers; and forecast ranges may provide a reasonable measure of the error in analyst forecasts, and hence of earnings predictability.

A class of agency problems is analyzed in which a principal, responsible for production decisions, delegates responsibility for gathering information germane to such decisions to an agent. At issue is the value of sample outcomes and other signals in improving the efficiency of contracts offered by the principal in resolving the moral hazard that arises from the unobservability of the agent's effort. It is Shown that sample outcomes are useful in providing appropriate incentives, as well as in conditioning production decisions. Ex post observability of either the state of nature or the payoff from production is also shown to be valuable for incentive purposes in all but highly specialized and less interesting situations. Among the classes of agents to which these findings might apply are market researchers, political pollsters, census takers, geological surveyors, research scientists, quality inspectors, traffic monitors, talent scouts, and corporate auditors.