[The efficient market hypothesis (EMH) has spawned a large and impressive body of "event studies." Conditional on the maintained hypothesis of market efficiency, these studies test the "information content" of events such as accounting earnings releases (Fama 1991). However, the notion of "information content" of accounting earnings has not been formally defined, except implicitly-via the way it is calibrated in event studies-as percent price change (risk and size adjusted) associated with earnings releases. In the assumption of belief homogeneity underlying the original formulation of EMH, where no competitive non-null trading is expected in equilibrium, price changes will reflect fully the public announcement (see, e.g., Grossman and Stiglitz 1980). Hence, price changes will, conditional on the endowment and preferences configuration and on prior homogeneously held beliefs, constitute a one-to-one mapping with the belief change induced by the earnings release, and could be adopted as an operational definition of information content (IC). However, admitting the possibility of belief-change heterogeneity into the analysis brings into question the theoretical validity and plausibility of this operational definition. Competitive trading that becomes possible as a result of disagreement would perturb the one-to-one mapping between price change and belief change induced by the earnings release. In any case we no longer have a well-defined single construct reflecting heterogeneous belief changes. Under belief homogeneity the market acts as if it were a single decision-maker whose belief change theoretically reflects and calibrates the value or "content" of information.1 Once we allow for multiple decision-makers, or equivalently, for belief-heterogeneity, however, this simple definition of IC is no longer applicable. How is one to aggregate the belief changes of different traders, and what weights should be attached to such changes in the process of aggregation? Moreover, even if an appropriate operational definition of IC were to be discovered under such circumstances, what would be the empirical manifestations? The derived "information content" measure includes volume reaction, price reaction, and the predisclosure expected belief dispersion. The results imply that neither price reaction nor volume reaction alone will provide a complete characterization of information content; both must be jointly observed along with some aspects of the existing information environment to gauge information content fully.]

Aggregation, Managerial decision making, Preference patterns, SEU Model

Capacity decisions, Opportunity costs, Opportunity variance

The paper examines the possible effects of insider trading rules on the incentives for firms to produce and disseminate information about themselves. The incentives to produce and disseminate information are examined analytically, both within a market free of insider trading rules and within a market with the existing insider trading rules. Thus, the incremental effect of insider trading rules on the incentives is assessed. It is concluded that the net effect of insider trading rules will most likely inhibit the generation, processing, and communication of inside information. And to the extent that insider information has allocative effects, the net effect of insider trading rules will be the deterrents of the production and dissemination of information that improves the allocation of resources. To the extent that insider trading rules are designed to prevent undesirable redistributions of wealth that could result from monopolistic access to information, and if this goal is to be taken for granted, then a more extensive regulation of what information is to be produced and disclosed may be needed to insure that information useful for allocation decisions is produced by the firm.

This article presents the author's comments on the criticism of his article "Transfer Pricing for Divisional Autonomy," published in an earlier issue of the journal "The Accounting Review," as of April 1975. The author's article suggested a transfer pricing system that achieves the goal of profit maximization for the firm as a whole. The author claimed that by employing the concept of a transfer price plus subsidy or tax to account for transactions between divisions of a decentralized firm, he had shown how the divisional managers can make decisions which maximize corporate profits. Moreover, with this transfer pricing system, divisional profits reflect divisional contribution to corporate profits. The criticism of the article stated that the divisional managers will not accept the accounting reports produced as a result of transfer-pricing system as measures of autonomous divisional interaction. It also stated that the system causes inefficiencies of one division to be passed on to the selling division in terms of lower average revenue, price and profits. Therefore, the selling division may ask for the right to audit the cost records of the buying division.

Presents information on a study which proposed a conceptual framework within which the alternative of reporting opportunity cost deviations in terms of their identified sources can be evaluated. Problem in identifying the deviation sources; Sources that may contribute to material price variance; Conclusions.

Voluntary Disclosure, Informal disclosure, Signaling, Dissemination of information

Income smoothing, Extraordinary items, Income before extraordinary items

Transfer Pricing, Decentralized firm