1. The Revolution. 2. Information. 3. Certainty. 4. Uncertainty. 5. The Evidence. 6. Market Efficiency. 7. Regulation. Index.

The price-earnings relation can be characterized as a system of simultaneous equations. Earnings and prices can behave as if they are both endogenously determined because they are jointly affected by information that is difficult to specify explicitly. Specification tests provide evidence that both earnings changes and price changes are endogenous. The price and earnings coefficients increase from OLS to joint estimation and, under a restrictive set of assumptions, provide increasingly similar estimates of the permanent component of earnings. The evidence is consistent with the contention that a portion of the single-equation bias can be mitigated via joint estimation.

Theory and practice of financial reporting are typically centered on the notion of income measurement. In this article, the authors adopt a fundamental measurement perspective. Income measurement is then argued to exist in a world of complete and perfect markets, but not necessarily otherwise. Hence, at a fundamental level the central feature of financial reporting cannot be income measurement. The writers then offer a reinterpretation of income reporting and accrual notions in terms of a "cost-effective" communication procedure.

This article presents information on some empirical result related to tax allocation and depreciation methods. The evidence indicated that deferral earnings had the highest association with security price changes. This unexpected finding is consistent with two rather different interpretations, either the market is efficient and deferral earnings is more consistent with the underlying information set impounded in security prices, or the market is inefficient in the sense that security prices reflect only the very narrow set of reported earnings numbers. Being intolerant of ambiguity, we conducted a further analysis, which attempts to explain a result we felt to be anomalous. In fact, the ratio will be equal to the internal rate of return on the asset. The analysis reported here discards the currently prevailing views of deferred taxes as a deferred credit or deferred liability and treats tax allocation arising out of differing depreciation methods for tax and reporting purposes as a form of depreciation.

This article presents information on some preliminary findings regarding the observed association between security prices and alternative income numbers, where the primary focus is upon the issue of interperiod tax allocation. The interperiod tax allocation controversy is an attractive research topic for several reasons. It is virtually impossible to resolve the controversy with traditional sorts of arguments. This is also true of many other measurement controversies in accounting and it is particularly obvious here. The controversy affects a large number of firms. Many other controversies tend to be of concern in only a few industries, while most firms have a deferred tax account. Although deferral is required, nondeferral income can be easily estimated from the financial statements. The association between the alternative earnings numbers and the behavior of security prices will indicate which method the market perceives to be the most related to the information used in setting equilibrium prices.

The study examines the capital market pricing of discretionary and nondiscretionary components of a major accrual in the banking industry, the allowance for loan losses. The analysis employs a two-stage approach in which the allowance account is first decomposed into estimates of its nondiscretionary and discretionary components. The second stage evaluates the market's valuation of the estimates of the components. Evidence suggests that the capital market perceives the allowance to be comprised of two components, a nondiscretionary component which is negatively priced and a discretionary component whose incremental pricing coefficient is positive.