Abstract ABSTRACT: The role of accounting data in the formation of security prices in general, and the process by which such prices adjust to the announcement of external accounting numbers in particular, has attracted considerable attention. Extending the research conducted by Ball and Brown, this paper examines the degree to which earnings yields of corporate equities affect the association between annual income numbers and security prices. The propositions of two alternative views on this association are analyzed in the context of a normative model of investor expectations and security price behavior. The empirical evidence reported in this paper leads to the conclusion that, by and large, the level of association between annual income numbers and security prices is not independent of the earnings yields of common stocks. This finding indicates that either there exists frictions in the security price adjustment process or the extant two-parameter model of market equilibrium is mis-specified. Finally, some important implications of these results for capital market researchers, as well as for investors are provided.

Abstract The article presents a comment by the authors on interindustry estimation of general price-level (GPL) impact on financial information. The January, 1973 issue of "The Accounting Review," contains an article by Russell Petersen that examined the impact of GPL adjustments on corporate financial statements. This comment is concerned with two specific shortcomings in the Petersen paper. First, it shows that his methodology for evaluating the impact of GPL restatements contains a fundamental error, which prevents an accurate assessment of the magnitude of "displacement" of certain of the financial parameters studied. The effect of this "comparability error" is sufficiently severe that it would alter some of Petersen's conclusions regarding the displacement effect of GPL restatements. Second, it questions the propriety of some of Petersen's statistical results and related discussion. It is believed that comparability error discussed in this article is but one example of a problem that is likely to arise with increasing frequency if disclosure of GPL restated information is required in the future.