Journal Article A Note on “The Optimal Depletion of Exhaustible Resources” Get access Farhed A. Shah Farhed A. Shah University of Alberta Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 51, Issue 2, April 1984, Page 351, https://doi.org/10.2307/2297698 Published: 01 April 1984 Article history Received: 01 August 1983 Accepted: 01 October 1983 Published: 01 April 1984

Interim reporting, Predictive ability, Earnings per share, Forecasting content

Auditing, Auditor concentration, Interlocking directorates, Auditor choice

Abstract ABSTRACT: This paper uses agency theory to examine the phenomenon of "real" income smoothing. The analysis suggests that incentive problems caused by the unobservability of a manager's actions can lead to the manager selecting actions at the end of a period to smooth the period's income toward its ex ante expected value. An important feature of the analysis is that both the principal and the manager are modeled as rational parties. In particular, the principal can predict what actions the manager will choose in response to any compensation scheme, and he takes this into consideration in deciding what compensation plan to offer. The analysis shows that the optimal compensation scheme offered by the principal causes the manager to smooth the firm's income. Income smoothing can therefore arise as optimal equilibrium behavior.

[This paper uses agency theory to examine the phenomenon of "real" income smoothing. The analysis suggests that incentive problems caused by the unobservability of a manager's actions can lead to the manager selecting actions at the end of a period to smooth the period's income toward its ex ante expected value. An important feature of the analysis is that both the principal and the manager are modeled as rational parties. In particular, the principal can predict what actions the manager will choose in response to any compensation scheme, and he takes this into consideration in deciding what compensation plan to offer. The analysis shows that the optimal compensation scheme offered by the principal causes the manager to smooth the firm's income. Income smoothing can therefore arise as optimal equilibrium behavior.]

Abstract ABSTRACT: This paper reviews the circumstances attending five major turning points in the process by which accounting principles have been established in the United States. Particular attention is directed to the apparent reasons why the new approaches or reforms were undertaken. The review, which covers a 56-year period, concludes that generalizations about the factors that were influential in the shaping of the decision-making process, especially over so long a period, are difficult to make. Nonetheless, a motivating force seems to have been the accounting profession's fear of government involvement. The American Accounting Association is seen to have played a role at several of the junctures.

Abstract ABSTRACT: Prior research has shown that time-series models were able to make better predictions of prospective earnings by utilizing segmented data. Those results suggest that humans may be able to utilize segmented data to improve their forecasts. This study used analysts' forecasts to address this latter issue. Analyst forecast accuracy was evaluated before and after implementation of the SEC's line-of-business disclosure requirements that became effective in 1971. Three sample groups of companies were studied: multisegment firms that first reported segment earnings in 1971, multisegment firms that had voluntarily disclosed segment earnings data prior to 1971, and a group of single-segment firms that continued to report only on a consolidated basis. Analyst forecasts were evaluated for accuracy before and after mandatory segmented earnings reporting with a multivariate repeated measures ANOVA model. While it was found that both the mean and variance of forecast error decreased for all three groups, the most significant change was for multisegment firms without prior segment disclosures.