Efficient market research arose in response to allegations from the professional investment community and critics of financial accounting, and it preceded a formal, conceptual development of market efficiency. Several ambiguities exist with respect to previous definitions of market efficiency. Market efficiency is defined here in terms of the equality of security prices under two information configurations (i.e., with and without universal access to the information system of interest). Casually, a securities market is efficient with respect to an information system if and only if security prices act as if everyone knows that information system. If this condition holds, prices are said to "fully reflect" the .information system. Several attributes of this definition are advantageous, relative to those, of earlier definitions.

This article presents a comment on the study of the implications of security price research for accounting in the U.S. The purpose of the work was primarily informative, to make accounting aware of a literature in finance that has important implications for accounting. In doing so, it has taken the current state of the art as a given. Obviously, as the literature extends itself, the earlier statements may have to be modified in light of the subsequent developments. It also calls for research on the relationship between financial statement variables and systematic skewness. The point of the earlier paper was to motivate the accounting profession to incorporate a class of literature into their thinking and research. These comments will serve to clarify why such incorporation is valuable and to further direct attention to this area.

Reviews the book "Financial Reporting by Diversified Companies," by R.K. Mautz.

The article focuses on evaluating alternative accounting measures. The evaluation of alternative accounting measures is one of the most difficult tasks facing the accounting profession. According to this method, alternative measures would be evaluated in terms of their ability to predict events of interest to users of accounting data. The measure with the greatest predictive ability with respect to a given event would be considered the "best" measure for that particular purpose. Although a variety of accounting measures have been offered as predictors, little is known empirically about their relative predictive power. The examination of this area can be described by summarizing earlier investigation. The purpose of the earlier study was to discover how well financial ratios could predict failure relative to random prediction. The findings of the study were: based solely upon a knowledge of the financial ratios, the failure status of firms can be correctly predicted to a much greater extent than would be expected from random prediction. This evidence, together with other tests conducted, suggested that financial ratios can be useful in the prediction of failure for at least five years prior to the event.

Reviews the book "Business Financial Management," by Gilbert W. Cooke and Edwin Bomeli.

William H. Beaver, Mark A. Wolfson, Foreign Currency Translation and Changing Prices in Perfect and Complete Markets, Journal of Accounting Research, Vol. 20, No. 2, Part II (Autumn, 1982), pp. 528-550

William H. Beaver, Joel S. Demski, The Nature of Financial Accounting Objectives: A Summary and Synthesis, Journal of Accounting Research, Vol. 12, Studies on Financial Accounting Objectives: 1974 (1974), pp. 170-187

We examine whether the properties of bond ratings from certified agencies (designated by the Securities and Exchange Commission (SEC)) differ from those of non-certified bond-rating agencies. Bond ratings from non-certified agencies are used solely for investment advice. Certified ratings are used by a variety of constituents, many of whom write contracts incorporating these ratings. We find that the properties of the ratings from the two agency types differ in predictable ways. Our results show that the non-certified agency's ratings are consistent with their role of providing information to investors. The certified agency is generally more conservative, consistent with their significant role in contracting.

[This study provides evidence that fair value estimates of loans, securities and long-term debt disclosed under SFAS No. 107 provide significant explanatory power for bank share prices beyond that provided by related book values. In contrast to Eccher et al. (1996) and Nelson (1996), we consistently find incremental explanatory power for loans' fair values. Relatively stronger findings are obtained using a set of significant conditioning variables, including nonperforming loans, and interest-sensitive assets and liabilities. The joint significance of these loan-related variables and loans' fair values indicates that loans' fair values do not reflect completely loan default and interest rate risk. The loans' coefficient is significantly larger for banks with higher regulatory capital, which is consistent with market participants discounting unrealized gains on loans disclosed by less healthy banks. The findings are robust with respect to the inclusion of additional explanatory variables and to a first differences formulation.]

[This study examines thrifts' supplemental disclosures with respect to default risk (scheduled items) and interest rate risk (repricing data). It represents an extension of a recent study (Beaver, Eger, Ryan, and Wolfson 1989; hereafter BERW), which also examines the relationship between banks' share prices and supplemental disclosures with respect to default risk (nonperforming loans) and interest rate risk (maturity data). However, there are differences between the research designs and the findings of the studies. The research design differences between the bank and thrift studies include: (1) the use of per share deflation instead of book value deflation; (2) the use of seemingly unrelated regressions (SUR), as well as a fixed-effects model; and (3) a partitioning of the sample according to availability of supplemental data to assess the impact of nondisclosure on the estimated coefficients. A sample of 165 publicly traded thrifts was used to regress market values on several variables, including supplemental disclosures. The findings differ from those of the bank study in several respects. First, the coefficient on the supplemental disclosure on interest rate risk is significant in the case of the banks but not in the case of thrifts. Second, the coefficient on the default risk variable is smaller for thrifts than for banks. Third, the following three additional findings extend the bank study. (1) Thrifts that do not disclose the default risk variable appear to be valued at a discount relative to disclosing thrifts. (2) The estimated effects of the incremental explanatory power of the default risk variable is robust with respect to two nonnested estimation methods, a fixed effects model, and a seemingly unrelated regression. (3) The finding regarding scheduled items is robust with respect to an alternative specification, which assesses differences in estimated coefficients for "good" loans versus "bad" loans.]