Accounting for futures contracts and the effect on earnings variability
Article Abstract:
The majority of research into the effects of regulatory changes in the financial markets emphasize the effect of information on the price of securities. A major flaw of the studies is the lack of a well-articulated theory linking rules of accounting measurement to the prices of capital assets, which makes it difficult to assess the reaction of the markets. A simulation of empirical tests comparing the effects of alternative accounting rules of the reported earnings of firms provides an alternative approach to examining the information content of regulatory changes. The approach does not require the link between accounting rules and security prices to be specified. A study of the earning streams of 76 banks and 27 brokerage firms using the approach was conducted to investigate the effect of Statement of Financial Accounting Standard (SFAS) No. 80, which required banks to book changes in futures contracts market values, on banks' and brokerages' earnings variability. Research results revealed that there is no variability of earnings before and after the adoption of SFAS No. 80.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1990
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Earnings and stock splits
Article Abstract:
The ability of stock splits to convey information about earnings is examined. Data was collected from 121 firms which do not pay cash dividends and which announced a stock distribution of 25% or more during the period 1970-1980. The results indicate that: companies split their shares after significant earnings increases; and that split announcements cause investors to expect that past earnings increases will be permanent. The results also indicate that market reactions to split announcements cannot be attributed to near-term cash dividend increases or future earnings increases.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1989
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