During the 1970s, the SEC expanded the scope of required disclosure and initiated what might be loosely described as a "continuous disclosure system." This note reviews key aspects of the "continuous disclosure" of unusual events in light of the Hakansson [1977] framework and addresses the issues of the manifestation of the continuous disclosure policy, the type of new information required, the timeliness of that information, and the use of mandated information by investors. The evidence indicates that SEC disclosure policy does meet the minimum conditions for utility.

Procedural flexibility can have a substantial impact on reported costs, revenues, expenses, and balance sheet valuations. Until 1978 oil and gas companies had considerable flexibility in applying full cost and successful efforts. A unique opportunity to measure the income effect of firms' procedural choices occurred when the SEC specified the exact procedures that must be followed by oil and gas producers when they account for exploratory and development costs under both the full cost and successful efforts methods. In complying with the new rules firms were required to adjust retained earnings retroactively to reflect what it would have been if the new procedures had been in effect all along. These retained earnings adjustments provide a measure of the income effect of procedural choices. This study shows that economic incentives influence the procedural accounting choices which were made by oil and gas producers. The same economic incentives also influence the choice of full cost or successful efforts. Finally, the discriminatory ability of firms' economci incentives is most powerful when firms' reporting strategies are defined in terms of both choice of accounting methods and procedural applications within those methods.

Our research confirms that book values possess significant ability to explain the acquisition values of oil and gas firms. It also indicates that RRA information provides incremental information over book values in determining acquisition values. However, when analyst information is more current than competing information, analysts' appraisals provide a significant incremental contribution beyond the explanatory ability of book values and reserve recognition data. Current analysts' information provides a stronger basis for predicting acquisition values than any model supplementing analysts' appraisals with additional information. This implies that current analysts' information captures all information sources and is consistent with the findings of “analysts superiority” in the extensive literature on earnings forecasts. Résumé. Les travaux des auteurs confirment que les valeurs comptables peuvent assez bien expliquer les valeurs d'acquisition des entreprises pétrolierès et gazières. Ils révèlent également que les renseignements livrés par la méthode de la capitalisation des gisements fournissent de l'information marginale par rapport aux valeurs comptables dans la détermination des valeurs d'acquisition. Toutefois, lorsque l'information des analystes financiers est plus récente que l'information concurrente, les évaluations des analystes apportent une contribution marginale importante au‐delà de la capacité explicative des valeurs comptables et de données relatives à la capitalisation des gisements. L'information récente des analystes offre une base plus solide pour la prévision des valeurs d'acquisition que tout modèle qui sert de complément aux évaluations des analystes. Cela suppose que l'information récente des analystes recouvre toutes les sources d'information et vient confirmer la conclusion reconnaissant la «supériorité des analystes » à laquelle se range une abondante documentation sur les prévisions de résultats.

Reviews the book " GAAP (Generally Accepted Accounting Principles) vs. TAP (Tailored Accounting Principles) in Lending Agreements: Canadian Evidence," by David B. Thornton and Murray J. Bryant.

This paper explores how private contracts tailor GAAP and whether tailoring reflects the characteristics of the contracting parties. The analysis reveals that contracts of bank and insurance lenders are different with bank agreements closer to public debt. Tailoring is one of several characteristics associated with insurance lending agreements. The extensive tailoring of GAAP income in insurance contracts enforces dividend and payout restrictions that are consistent with the interest of long-term insurance lenders. In contrast, bank lenders deal with borrowers' default risk by negotiating shorter maturities, security, sinking funds, and loan syndication.

Considerable research has examined the ability of accounting information to predict bankruptcy. Bankruptcy, however, represents only one of many possible outcomes for the distressed firm. A timely merger can serve as a bankruptcy alternative. The study compares a sample of distressed firms that merged to a sample of distressed firms that entered bankruptcy. Theory suggests that the owners of distressed firms should prefer merger. The managers, however, may feel that their interests are better sewed through bankruptcy. The examination focuses upon both firm-related characteristics and the personal interests of owners as determinants of the merger/bankruptcy choice. A probit analysis was used to test the importance of three firm-related variables--revenues, financial leverage, and the magnitude of tax carryforwards in explaining the merger/bankruptcy decision. The examination shows that the distressed firms that merge have lower financial leverage and are larger than firms that enter bankruptcy. Tax carryforwards are not important in the model. We also examined the association of ownership concentration with the merger/bankruptcy choice. The tests reveal that distressed firms with high ownership concentration (or owner control) show an increased tendency to merge rather than to declare bankruptcy. The results suggest that the self-interest of managers, rather than just the interests of shareholders and creditors, seems to help motivate the merger/bankruptcy choice.

[Considerable research has examined the ability of accounting information to predict bankruptcy. Bankruptcy, however, represents only one of many possible outcomes for the distressed firm. A timely merger can serve as a bankruptcy alternative. The study compares a sample of distressed firms that merged to a sample of distressed firms that entered bankruptcy. Theory suggests that the owners of distressed firms should prefer merger. The managers, however, may feel that their interests are better served through bankruptcy. The examination focuses upon both firm-related characteristics and the personal interests of owners as determinants of the merger/bankruptcy choice. A probit analysis was used to test the importance of three firm-related variables-revenues, financial leverage, and the magnitude of tax carryforwards in explaining the merger/bankruptcy decision. The examination shows that the distressed firms that merge have lower financial leverage and are larger than firms that enter bankruptcy. Tax carryforwards are not important in the model. We also examined the association of ownership concentration with the merger/bankruptcy choice. The tests reveal that distressed firms with high ownership concentration (or owner control) show an increased tendency to merge rather than to declare bankruptcy. The results suggest that the self interest of managers, rather than just the interests of shareholders and creditors, seems to help motivate the merger/bankruptcy choice.]

A unique opportunity to investigate intramethod comparability arose recently when the Securities and Exchange Commission specified the procedures that must be followed by oil and gas producers accounting for exploratory costs under either the full cost or the successful efforts method. Although the Commission did not mandate which method registrants must use, it did define the specific applications to be followed under each method. Similarly, it required registrants to disclose the impact of retroactive application of the procedures on retained earnings and current net income. These adjustments provide a means to measure the magnitude of intramethod accounting differences that existed in the oil and gas industry before uniform applications were imposed. Results demonstrate that the choice of specific procedures within a supposed accounting method can have a material effect on net income, retained earnings, and asset balances. These results imply that intramethod uniformity can be vital in achieving the goal of intraindustry comparability of financial statements.

This study examines factors that affected managements' choices in accounting for leases prior to the implementation of SFAS No. 13. Empirical evidence indicates that financial contracting and management bonus incentive variables help explain the choice. Empirical results do not support the political cost hypothesis; rather, tax return considerations also seem to influence managements' lease accounting choice.

Studies the effects of the disclosure of nonpublic information to explain target firms' runups prior to mergers. Criticisms on the disclosure system; US Securities and Exchange Commission's disclosure laws; Effects of ownership control structure on the dissemination of firms' acquisition-related information.