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Understanding Accounting Changes in an Efficient Market: Evidence of Differential Reaction
TLDR
In this article, the authors evaluated the joint effect of two factors on the behavior of common stock prices: the decision to switch the method of costing inventory to LIFO, and the sign of the expected growth in EPS before the announcement of the change was made.Abstract:
Using two samples (one as an experimental and one as a control), the authors evaluated the joint effect of two factors on the behavior of common stock prices. These factors were (1) the decision to switch the method of costing inventory to LIFO, and (2) the sign of the expected growth in EPS before the announcement of the change was made. The findings in this article appear to support the hypothesis that the decision to change the accounting method of costing inventory to LIFO is given different interpretations by the securities market, depending on the sign of expected growth in EPS. The significance of the joint effect of the two factors and the existence of differential reaction to the accounting change suggests that intervening variables mediate between accounting-based information and the securities market in processing of the signals provided by such information. Different intervening variables may alter the interpretation of the same accounting event.read more
Citations
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An income strategy approach to the positive theory of accounting standard setting/choice
TL;DR: In this paper, the authors provide additional evidence on the positive theory of accounting policy choice by combining individual accounting principles into firm income strategies, using a probit analysis where the independent variables were size, management compensation, industry concentration ratio, systematic risk, capital intensity and the total debt to total asset ratio.
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Market-Based Empirical Research in Accounting: A Review, Interpretation, and Extension
Baruch Lev,James A. Ohlson +1 more
TL;DR: A decade and a half of the most concerted and ambitious research effort in accounting history is evaluated here as discussed by the authors, which is the search into the relationship between publicly disclosed accounting information and the consequences of the use of this information by the major group of user-sequity investors.
The market reaction to social responsibility disclosures: the case of the sullivan principles...
TL;DR: In this article, the authors examined the stock trading volume and price return reaction to the 1977 disclosures that certain United States companies doing business in South Africa had agreed to the Sullivan Principles and found that non-signing firms experienced significantly higher unexpected trading volume than signing firms around the announcement date.
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Evidence on the Choice of Inventory Accounting Methods: LIFO Versus FIFO
Nicholas Dopuch,Morton Pincus +1 more
TL;DR: In this article, the authors describe various systematic properties of LIFO and FIFO firms' accounting numbers and provide additional evidence on tax and nontax explanations of firms' choices of inventory accounting methods.
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Stock Price Reactions to LIFO Adoptions: The Association Between Excess Returns and LIFO Tax Savings
TL;DR: In this article, the authors examined the relationship between unsystematic returns and the magnitudes of first-year LIFO tax savings for all NYSE firms which adopted or extended their use of LifO during the period 1972-80.
References
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Efficient capital markets: a review of theory and empirical work*
TL;DR: Efficient Capital Markets: A Review of Theory and Empirical Work Author(s): Eugene Fama Source: The Journal of Finance, Vol. 25, No. 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the American Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp. 383-417 as mentioned in this paper
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An empirical evaluation of accounting income numbers
Ray Ball,Philip Brown +1 more
TL;DR: In this article, it is argued that income numbers cannot be defined substantively, that they lack "meaning" and are therefore of doubtful utility, and the argument stems in part from the patchwork development of account-based theories.
Posted Content
The Capital Asset Pricing Model: Some Empirical Tests
TL;DR: In this paper, the authors present some additional tests of the mean-variance formulation of the asset pricing model, which avoid some of the problems of earlier studies and provide additional insights into the nature of the structure of security returns.
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Corporate forecasts of earnings per share and stock-price behavior - empirical tests
TL;DR: In this paper, the authors examined the common stock price behavior which accompanied the voluntary disclosure of 336 forecasts of annual earnings per share during the years 1963-67 and found that these forecast disclosures were accompanied by significant price adjustments, from which the inference may be drawn that either the data presented in a management forecast, the act of voluntary disclosure, or both, convey information to investors.
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A theory of optimal capital structure
TL;DR: In this article, a multi-period model of firm valuation derived under the assumptions that bankruptcy is possible and that secondary markets for assets are imperfect is presented, given the assumption that the probability of bankruptcy is zero, the model is formally identical to that proposed by Modigliani and Miller.
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