Robert Jennings, Unsystematic Security Price Movements, Management Earnings Forecasts, and Revisions in Consensus Analyst Earnings Forecasts, Journal of Accounting Research, Vol. 25, No. 1 (Spring, 1987), pp. 90-110

The article presents a heuristic approach to effective rates of interest being charged on loans repaid in equal installments. For instance, a situation is considered in which a one-year loan to be repaid in 12 equal monthly installments and a 6% interest rate quoted on the original unpaid balance is calculated. Figuring the average amount of outstanding principal for the year and dividing that amount into the interest charge to compute the effective rate would compute the effective rate of interest charged. A short-cut computation is available to convert from a quoted rate to an effective rate but noting that it is only necessary to multiply the quoted rate by the ratio of the original principal to the average principal outstanding. Still, a further shortcut is to note that the average principal outstanding is equal to the average of the sum of first schedule balance and last schedule balance. Assuming a 36-month loan to be repaid in equal monthly installments and a 6% annual interest rate quoted on the original unpaid balance effective rate is calculated. The result suggests that the effective rate could approach but not exceed twice the quoted rate.

A physical flow analogy might be of considerable benefit in aiding the student in reasoning through the adjusting process of expenses topic in principles instruction. The purpose of this paper is to present such an analogy. When a business entity disburses money for any relatively short lived item to be used in the operation of the business it may elect to classify this disbursement as an asset or as an expense. The choice at this time may be compared to storage tanks intended for items awaiting final disposition. Point A represents a closed valve that is opened only at adjustment time. The direction of flow when A is opened may be assumed from the underlying purpose of the adjusting process, that is, to charge the Profit and Loss Summary with the amounts used in the current period that pass through the expense storage tank and to leave in asset storage the amounts not yet used that will benefit future accounting periods. An equilibrium position will be achieved when the amounts in the respective tanks correspond to this underlying purpose. Point B represents a closed valve that will open at closing time and only after the equilibrium position has been attained.

In recent random reading, the author encountered a reference to a Rhode Island firm with copies of business records dating to the early 1700's. The firm is The John Stevens Shop of Newport, Rhode Island. Upon inquiry, a photo-offset copy of the original account book was obtained from the present proprietor, and an interesting investigation was underway. One of the first obvious accounting facts to present itself is the debit and credit notation. This particular individual used the present style of debits as left-side entries, and credits as right-side entries, as indicated by a number of pages in which individuals are charged on the left pages of the book and credited on the right pages. With the customary English practice of presenting balance sheets with the items reversed from American practice, there is some uncertainty regarding this method of presentation. Regardless of the reason, the record keeper consistently maintained this separation. There is some evidence to support the contention that this must have been one of the earliest uses of the double entry book-keeping method in America.

The article presents an algebraic model for working capital. The balance sheet equation in slightly expanded form can be utilized algebraically to demonstrate all the potential increases or decreases in working capital. There are four mathematical equations to demonstrate these changes in balance sheet. The first mathematical equation is asset is equal to the sum of liability and owner's equity. The second equation is that sum of the values of current assets and fixed assets is equal to sum of current liabilities, fixed liabilities and owner's equity. The third equation is that difference in current assets and current liabilities is equal to the difference of the sum of fixed liabilities and owner's equity with fixed assets. The fourth equation is the working capital is equal to the difference in sum of fixed liabilities and owner's equity with fixed assets. Fourth equation defines working capital in terms of three general classifications of accounts and actually equates working capital to their algebraic sum.

This paper examines problems in the use of divergence of analyst opinion as a proxy for estimation risk in empirical studies of security returns and asset pricing models. We demonstrate that diversity of opinion can increase even though the amount of private information increases, and we show that diversity of opinion may overstate estimation risk if the capital market aggregates the information held by investors. We produce empirical results consistent with our conclusions. Specifically, we find that divergence of opinion can produce measures of estimation risk that are inconsistent with a received proxy for estimation risk and with observed common stock returns.

Previous analyses of market structures characterized by gradual information dissemination presume the equilibrium price existing after all market participants are informed is independent of the order of information dissemination. In these papers, final market clearing price, given the investors' posterior beliefs, is known a priori and is assumed to equal the price that would exist if data were disseminated simultaneously. We demonstrate that final equilibrium price is dependent, in general, on the order of information dissemination. This implies that, if the dissemination sequence is stochastic, price is unknown prior to the complete dissemination of information, even if the investors' posterior beliefs given the information event are known. We derive a necessary and sufficient condition for equilibrium price to be independent of the dissemination sequence in our economy. Our analysis highlights the importance of the wealth redistribution dynamics inherent in the information dissemination process.

The process of security price adjustment to the release of new information has long held the interest of the finance profession, both in academics and in practice. The efficiency of financial markets in reflecting new information significantly impacts the allocation of capital and income within the markets1 and, consequently, can affect social welfare. Thus, public, business, and investment policies are all related to an understanding of the functioning of security markets and their utilization of information. As a result, a significant body of economic research has considered the impact of information upon security markets under a number of alternative market structures. In this paper, we attempt to contribute to this literature by extending previous research in the two related areas of speculation and information dissemination.

In 2001, the Securities and Exchange Commission (SEC) required market centers to publish monthly execution-quality reports in an effort to spur competition for order flow between markets. Using samples of stocks trading on several markets, we investigate whether past execution quality affects order-routing decisions and whether the new disclosure requirements influence this relationship. We find that routing decisions are associated with execution quality; markets reporting low execution costs and fast fills subsequently receive more orders. Moreover, the reports themselves appear to provide information that was unavailable previously. Our results are consistent with active competition for order flow that can be influenced by public disclosure.

[In 2001, the Securities and Exchange Commission (SEC) required market centers to publish monthly execution-quality reports in an effort to spur competition for order flow between markets. Using samples of stocks trading on several markets, we investigate whether past execution quality affects order-routing decisions and whether the new disclosure requirements influence this relationship. We find that routing decisions are associated with execution quality; markets reporting low execution costs and fast fills subsequently receive more orders. Moreover, the reports themselves appear to provide information that was 2unavailable previously. Our results are consistent with active competition for order flow that can be influenced by public disclosure.]