Until 1974, firms could choose, within GAAP, to capitalize or expense interest costs associated with capital expenditures. The predominant practice had been to treat interest as a period expense. However, in 1974, the Securities and Exchange Commission imposed a moratorium on further adoption of interest capitalization by non-regulated firms. This study empirically examines economic factors potentially influencing firms' decisions to expense or capitalize interest prior to the SEC moratorium. We hypothesize that the choice may be affected by (1) the existence of management compensation agreements tied to reported earnings, (2) debt covenant constraints, and (3) the political costs (for some firms) of reporting higher earnings. When compared to the control group, our findings are that (1) the frequency of explicit management compensation packages was not greater for the interest capitalization group, (2) firms with financial ratios closer to likely debt agreement constraints (on dividends, interest coverage, and leverage) tended to elect interest capitalization, and (3) other than the largest firms in the ‘politically sensitive’ petroleum refining industry, the larger firms were more likely to capitalize interest.

George M. Frankfurter, Joanne M. Hill, A Normative Approach to Pension Fund Management, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 4, Proceedings of 16th Annual Conference of the Western Finance Association, June 18-20, 1981, Jackson Hole, Wyoming (Nov., 1981), pp. 533-555

Journal Article Corporate Tax Policy and the Service Life of Capital Equipment Get access James M. Malcomson James M. Malcomson University of York Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 48, Issue 2, April 1981, Pages 311–316, https://doi.org/10.2307/2296887 Published: 01 April 1981 Article history Received: 01 July 1978 Accepted: 01 September 1980 Published: 01 April 1981

Journal Article Stability of Zero Production Under Life-Cycle Savings Get access Robert M. Costrell Robert M. Costrell University of Massachusetts, Amherst Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 48, Issue 4, October 1981, Pages 661–665, https://doi.org/10.2307/2297207 Published: 01 October 1981 Article history Received: 01 June 1980 Accepted: 01 March 1981 Published: 01 October 1981

James M. Patell, Mark A. Wolfson, The Ex Ante and Ex Post Price Effects of Quarterly Earnings Announcements Reflected in Option and Stock Prices, Journal of Accounting Research, Vol. 19, No. 2 (Autumn, 1981), pp. 434-458

In this paper Ho and Saunders apply a model that has been used to analyze dealer spreads to banking.A potential contribution to a field can arise whenever a well-developed framework of analysis in one problem area is applied to another field. The risk of a mechanical application, however, is that the institutional structure of the two problem areas is so different that no real insights are gained. What are the facts here?

Stephen M. Schaefer, Taxation and Bond Market Equilibrium in a World of Uncertain Future Interest Rates: Comment, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 5 (Dec., 1981), pp. 773-777

This paper investigates the resource reallocation effected by content protection and content preference schemes under alternative assumptions regarding the definition of domestic content, the number of intermediate goods, and the market structure of the domestic intermediate good industry. Content protection is shown to be equivalent to a combination of more familiar commercial policies. However, the extent of application of these policies is determined endogenously by parameters of the production functions for intermediate and final goods. A number of anomalous and undesirable outcomes that may result from content protection and content preference are discussed.

This paper is a theoretical investigation of equilibrium forward and futures prices. We construct a rational expectations model in continuous time of a multigood, identical consumer economy with constant stochastic returns to scale production. Using this model we find three main results. First, we find formulas for equilibrium forward, futures, discount bond, commodity bond and commodity option prices. Second, we show that a futures price is actually a forward price for the delivery of a random number of units of a good; the random number is the return earned from continuous reinvestment in instantaneously riskless bonds until maturity of the futures contract. Third, we find and interpret conditions under which normal backwardation or contango is found in forward or futures prices; these conditions reflect the usefulness of forward and futures contracts as consumption hedges.