Reviews the book "Introduction to Financial Accounting," 2nd ed., by Charles T. Horngren.

Ross Jennings, Paul J. Simko, Robert B. Thompson II, Does LIFO Inventory Accounting Improve the Income Statement at the Expense of the Balance Sheet?, Journal of Accounting Research, Vol. 34, No. 1 (Spring, 1996), pp. 85-109

Robert B. Thompson II, Chris Olsen, J. Richard Dietrich, Attributes of News about Firms: An Analysis of Firm-Specific News Reported in the Wall Street Journal Index, Journal of Accounting Research, Vol. 25, No. 2 (Autumn, 1987), pp. 245-274

[During 1974-75, more than a fourth of the manufacturing and merchandising firms listed on the New York Stock Exchange and the American Stock Exchange adopted or extended their use of the last-in, first-out (LIFO) method of inventory accounting. Because a change to LIFO accounting can materially affect a firm's cash flows, the stock price behavior of firms adopting LIFO during fiscal year 1974 has been studied extensively. However, existing studies provide little evidence that stock price movements during the period were directly linked with LIFO adoption. In this article, we report the results of new tests for a stock price response to disclosures of 1974 LIFO decisions by both adopting and non-adopting firms. Our tests assume that, prior to disclosure, prices reflect available information about the likelihood of LIFO adoption. This implies (for both groups of firms) that the stock price change in response to disclosure of the LIFO decision depends on investors' revisions in their beliefs regarding the probability of adoption caused by the disclosure. We use this implication to design tests of the null hypothesis of no association between stock price movements and the disclosure of 1974 LIFO decisions. Our tests are based on a sample of 487 firms that could have adopted LIFO during fiscal 1974. For each firm, we first identify an interval that includes the disclosure of its LIFO decision. We then estimate the probability of LIFO adoption at the beginning of that interval on the basis of information that was available at the time. Finally, we regress disclosure-interval stock returns on revisions in the probability of adoption resulting from disclosure of the decision. Our results provide strong evidence of a price response for nonadopting firms and weaker evidence of a price response for adopting firms.]

[In many accounting and finance research studies it is hypothesized that the news release under study has valuation implications. Results often indicate that the distribution of risk adjusted residual common stock returns, conditional on the occurrence of a wide variety of specific news event types, differs in one or more moments from the distribution of returns when such events are absent. This paper demonstrates that the distribution of Wall Street Journal news-conditional residual returns differs from the distribution of returns when such news is absent. A "news-conditional" model of the process generating security returns is proposed as an alternative to models typically used in previous event studies. Standardized prediction errors and squared standardized prediction errors from the news-conditional model are compared with those generated by conventional procedures.]

In many accounting and finance research studies it is hypothesized that the news release under study has valuation implications. Results often indicate that the distribution of risk adjusted residual common stock returns, conditional on the occurrence of a wide variety of specific news event types, differs in one or more moments from the distribution of returns when such events are absent. This paper demonstrates that the distribution of Wall Street Journal news-conditional residual returns differs from the distribution of returns when such news is absent. A "news-conditional" model of the process generating security returns is proposed as an alternative to models typically used in previous event studies. Standardized prediction errors and squared standardized prediction errors from the news-conditional model are compared with those generated by conventional procedures.

Using hand-collected data, we examine the targeting of shareholder class action lawsuits in merger and acquisition (M&A) transactions, and the associations of these lawsuits with offer completion rates and takeover premia. We find that M&A offers subject to shareholder lawsuits are completed at a significantly lower rate than offers not subject to litigation, after controlling for selection bias, different judicial standards, major offer characteristics, M&A financial and legal advisor reputations as well as industry and year fixed effects. M&A offers subject to shareholder lawsuits have significantly higher takeover premia in completed deals, after controlling for the same factors. Economically, the expected rise in takeover premia more than offsets the fall in the probability of deal completion, resulting in a positive expected gain to target shareholders. However, in general, target stock price reactions to bid announcements do not appear to fully anticipate the positive expected gain from potential litigation. We find that during a merger wave characterized by friendly single-bidder offers, shareholder litigation substitutes for the presence of a rival bidder by policing low-ball bids and forcing offer price improvement by the bidder.