M&A, Tender offer, Conservative accounting, Target characteristics

Bertrand N. Horwitz, Richard Kolodny, [Discussion of The Economic Effects of Involuntary Uniformity in the Financial Reporting of R&D Expenditures and Accounting for Research and Development Costs: The Impact on Research and Development Expenditures]: A Reply, Journal of Accounting Research, Vol. 18, Studies on Economic Consequences of Financial and Managerial Accounting: Effects on Corporate Incentives and Decisions (1980), pp. 96-107

Bertrand N. Horwitz, Richard Kolodny, The Economic Effects of Involuntary Uniformity in the Financial Reporting of R&D Expenditures, Journal of Accounting Research, Vol. 18, Studies on Economic Consequences of Financial and Managerial Accounting: Effects on Corporate Incentives and Decisions (1980), pp. 38-74

[This study examines the contention that a change in the method of financial reporting for privately-funded research and development (Statement of Financial Accounting Standards No. 2 and Securities and Exchange Commission Accounting Series Release No. 178) may have affected the ability of small high-technology firms to secure federal agency contract awards for R&D. Even though cash flows were not changed, many of these firms had significantly negative changes in the accounting levels and ratios used by federal agency analysts in evaluating financial capability of contract bidders as part of a preaward survey. ANOVA and ANCOVA models on a set of 101 research-intensive firms, with under $100 million of sales in 1975 and analyzed over the time period 1970-1979, did not detect an effect on the dollar amounts of the awards. Also, a matched-pair comparative study did not demonstrate any significant differences between expensing (unaffected) and deferring (affected) firms. Based upon these results, it is concluded that there is no evidence that the R&D rule reduced the amount of R&D awards by federal agencies to small research-intensive companies.]

This study examines the contention that a change in the method of financial reporting for privately-funded research and development (Statement of Financial Accounting Standards No. 2 and Securities and Exchange Commission Accounting Series Release No. 178) may have affected the ability of small high-technology firms to secure federal agency contract awards for R&D. Even though cash flows were not changed, many of these firms had significantly negative changes in the accounting levels and ratios used by federal agency analysts in evaluating financial capability of contract bidders as part of a preaward survey. ANOVA and ANCOVA models on a set of 101 research-intensive firms, with under $100 million of sales in 1975 and analyzed over the time period 1970-1979, did not detect an effect on the dollar amounts of the awards. Also, a matched-pair comparative study did not demonstrate any significant differences between expensing (unaffected) and deferring (affected) firms. Based upon these results, it is concluded that there is no evidence that the R&D rule reduced the amount of R&D awards by federal agencies to small research-intensive companies.

Reviews the book "Accounting Theory: A Conceptual and Institutional Approach," by Harry I. Wolk, Jere R. Francis and Michael G. Tearney.

Reviews the book "Financial Statement Analysis: A New Approach," by Baruch Lev.

The article determines whether there are significant correlations between general wage increases and a number of financial variables at the level of the firm. Empirical research, which has attempted to assess the relevance or importance of reported external accounting information on decisions, has been largely or entirely confined to the decisions of investors or creditors. These studies are either simulation or regression models that predict the effects of behavior in circumstances where accounting categories or ratios change. The theory of wage determination in economics is based upon assumptions of demand and supply conditions in the sales and labor markets. Different assumptions about the condition of the sales market and the labor market, that is, competitive or monopolistic in the first case or competitive or monopsonistic in the latter case, determine what the equilibrium level of wages will be. A related economic approach has been to apply the bilateral monopoly analogy to wage determination by considering the labor union as a monopolist selling labor services to a single buyer of these services.

Reviews the book "Accounting in Soviet Planning and Management," by Robert W. Campbell.