Mary E. Barth, Greg Clinch, Revalued Financial, Tangible, and Intangible Assets: Associations with Share Prices and Non-Market-Based Value Estimates, Journal of Accounting Research, Vol. 36, Studies on Enhancing the Financial Reporting Model (1998), pp. 199-233

Glaeser and Lang (2024; GL) reviews the accounting literature on innovation, which has increased substantially in recent years. GL makes an important contribution to accounting research by bringing into the literature the implications of Romer's Nobel Prize winning endogenous growth theory and by explaining how accounting research addresses questions related to innovation. We contribute to accounting research by building on GL's foundation to suggest three main paths forward for future innovation research. First, focus on innovation's three defining attributes: novelty, nonrivalry, and partial excludability. Second, determine the needs of various users of information about a firm's innovation activities and how to meet those needs; we focus on the needs of investors. Third, address questions our discussion highlights as potentially important for future research on financial reporting and innovation, including the crucial question of an innovation's identifiability.

We discuss “Economic Consequences of Mandatory Auditor Reporting to Bank Regulators” by Balakrishnan, De George, Ertan, and Scobie (BDES, in this issue). BDES concludes that a key benefit of mandatory auditor reporting to bank regulators is reduced bank risk, and its costs include reduced profitability from less overall and less risky lending, and higher audit costs. BDES also provides evidence on the channels through which mandatory auditor reporting links to reduced bank risk. We scrutinize BDES's analyses and inferences and suggest additional analyses to improve and deepen them. Most notably, we caution that effective bank regulation entails reducing risk for riskier banks; risk reduction for safer banks suggests regulatory overreach. Our evidence is more indicative of regulatory overreach. Thus, although BDES is an important step forward in understanding the role auditors can and do play in improving information available to key decision-makers other than through auditor reports on financial statements and internal controls, a comprehensive assessment of whether the benefits of mandatory auditor reporting to bank regulators exceed its costs is left for future research. Such an assessment is necessary before concluding whether mandatory auditor reporting leads to more effective bank regulation or regulatory overreach.

Mary E. Barth, Maureen F. McNichols, Estimation and Market Valuation of Environmental Liabilities Relating to Superfund Sites, Journal of Accounting Research, Vol. 32, Studies on Accounting, Financial Disclosures, and the Law (1994), pp. 177-209

We show harmonizing domestic GAAP with foreign GAAP can have deleterious effects on security market performance, specifically price informativeness and trading volume. Harmonization effects result from interaction between two forces. Direct informational effects depend on whether harmonization increases or decreases GAAP precision. Expertise acquisition effects depend on benefits and costs to foreign investors of becoming domestic GAAP experts. These countervailing forces can result in harmonization to more (less) precise GAAP increasing (decreasing) or, unexpectedly, decreasing (increasing) price informativeness and trading volume. We also observe this for a cost of capital metric. Thus, harmonization is not necessarily a desirable singular goal.

We find, as predicted, that upward revaluations of fixed assets by UK firms are significantly positively related to changes in future performance, measured by operating income and cash from operations, indicating revaluations reflect asset value changes. Current year revaluations (revaluation balances) also are significantly positively related to annual returns (prices). Relations between revaluations and future performance and prices are weaker for higher debt-to-equity ratio firms, indicating motivation affects how revaluations reflect asset value changes. The relations also are weaker for cross-listed firms and in a more volatile economic time period. Our inferences are robust to controlling for firms' acquisition activity.

Our recognition and disclosure model reveals that price informativeness is determined by the interaction of the qualities of three information sources—the recognized amount, the disclosed information, and the information revealed by price—and accounting expertise acquisition. It also reveals that recognition of an accounting amount alters each of these, thereby affecting price informativeness. Perhaps surprisingly, we find that recognition of a highly unreliable accounting amount, rather than simply disclosing it, can result in greater price informativeness. Likewise, recognition of a highly reliable amount can result in lower price informativeness. Our findings suggest that, because of the effects of aggregation, basing recognition decisions on reliability alone is too simplistic. Reliability relative to relevance is key, not reliability per se. We also find that recognition and disclosure affect the coefficients in a regression of price on accounting amounts.