Abstract Reviews the book `Economic Accounting,' by Diran Bodenhorn.

[Prior research has developed some econometric properties of accounting valuation rules as linear aggregations of prices and quantities. This study evaluates these proposed properties using actual price data and published price indexes for industrial machinery and equipment for the time period of 1973-1980. Current order prices for 4,875 new industrial machinery and equipment assets were obtained from commercially published pricing guides. The order prices were then used to construct a set of composite price indexes. The Bureau of Labor Statistics (BLS) Producer Price Indexes were also obtained. Various sized asset portfolios were simulated, and the changes in their values were estimated using both the constructed and the BLS price indexes. The changes in estimated and actual values of the simulated portfolios were compared to generate both Bias and mean-squared-error (MSE) measures resulting from the use of price indexes under various experimental conditions. These error measures were then used to evaluate the econometric properties proposed by earlier studies. In addition, total valuation errors were decomposed into movement and measurement components. Movement error is the valuation error attributable to deviations of the relative weights of assets used in constructing price indexes from those of the firm's asset portfolio. Measurement error is the valuation error arising from pricing errors, substitution bias, and inadequate adjustments for technological or quality changes in constructing price indexes. The main results indicate that (1) movement error Bias is zero, but measurement error Bias is nonzero; (2) both MSE movement error and MSE measurement error decline with the use of increasingly fine index systems and with the holding of more diversified asset portfolios, but increase as the asset holding period lengthens; and (3) measurement error tends to be the major source of total error. These findings are based on an assumption that the order prices taken from the commercial pricing guides are void of significant measurement error. Based on these results, it appears that additional effort should be devoted to enhancing price index construction techniques so that measurement error is decreased. Because portfolio diversification appears to reduce all components of error, asset valuations based on a price-index methodology should, perhaps, be restricted to cases involving larger groups of assets rather than very specialized strata of assets. Also, it may be appropriate to restrict the use of price indexes to assets of certain ages, as the study findings indicate that longer asset holding periods are associated with larger errors.]

Abstract Reviews the book `Analytical Review Procedures and Processes in Auditing,' by Stanley F. Biggs, Theodore J. Mock and Paul R. Watkins.

Share-price responses to 95 announcements of increased research and development (R & D) spending are significantly positive on average, even when the announcement occurs in the face of an earnings decline. High-technology firms that announce increases in R & D spending experience positive abnormal returns on average, whereas announcements by low-technology firms are associated with negative abnormal returns. Further, in our cross-sectional analyses we find that higher R & D intensity than the industry average leads to larger stock-price increases only for firms in high-technology industries.

Taylor's series and logarithmic estimates of health state-dependent utility functions both imply that job injuries reduce one's utility and marginal utility of income, thus rejecting the monetary loss equivalent formulation. Injury valuations have unitary income elasticity, and the valuation of non-incremental risk changes and effects of base risks follow economic predictions.

Joseph V. Terza, Paul W. Wilson, Analyzing Frequencies of Several Types of Events: A Mixed Multinomial- Poisson Approach, The Review of Economics and Statistics, Vol. 72, No. 1 (Feb., 1990), pp. 108-115

The short-run interdependence of prices and price volatility across three major international stock markets is studied. Daily opening and closing prices of major stock indexes for the Tokyo, London, and New York stock markets are examined. The analysis utilizes the autoregressive conditionally heteroskedastic (ARCH) family of statistical models to explore these pricing relationships. Evidence of price volatility spillovers from New York to Tokyo, London to Tokyo, and New York to London is observed, but no price volatility spillover effects in other directions are found for the pre-October 1987 period.

ABSTRACT This paper develops a theory of capital structure in an international setting with corporate and personal taxes. We generalize the Miller analysis to an international equilibrium characterized by differential international taxation and inflation in otherwise perfect international capital markets. Our analysis highlights the key role that corporate tax arbitrage plays in generating an international capital structure equilibrium, and we set forth a number of mechanisms for tax arbitrage transactions. We close the paper by outlining some implications of our analysis for national differences in capital structure, the International Fisher Effect, and international tax effects on yield differentials.

This paper develops a theory of capital structure in an international setting with corporate and personal taxes. The authors generalize the analysis of M. M. Miller (1987) to an international equilibrium characterized by differential international taxation and inflation in otherwise perfect international capital markets. The authors' analysis highlights the key role that corporate tax arbitrage plays in generating an international capital structure equilibrium, and they set forth a number of mechanisms for tax arbitrage transactions. They close the paper by outlining some implications of their analysis for national differences in capital structure, the international Fisher effect, and international tax effects on yield differentials.