The high inflation of the 1970s generated widespread dissatisfaction with historical based financial data and resulted in pressure on the accounting profession to address perceived shortcomings of traditional accounting information. In response, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 33 (FAS 33). FAS 33 was issued in September 1979 and became effective for fiscal years ending on or after December 25, 1979. The Statement requires disclosure of constant dollar (general price-level adjusted) and current cost (specific price-level adjusted) information. The FASB adopted FAS 33 as a means to encourage empirical evaluation of the usefulness of constant dollar and current cost measures.;One means of evaluating accounting information is to examine the relationship between accounting disclosures and security prices. This study compares the ability of historical cost, constant dollar, and current cost returns on equity to explain security price movements surrounding the disclosure dates of these data. Initially, the ability of historical cost returns on equity to explain security returns is assessed. Two variations of constant dollar and three variations of current cost returns on equity are tested, in addition to the traditional historical cost information.;Subsequently, the incremental explanatory power (information content) of each method is evaluated. The constant dollar and current cost methods are tested to determine if they possess information that explains security price movements that are not explained by historical cost data. Finally, the converse is tested--whether the historical cost data possess information to explain security price movements that are not explained by constant dollar or by current cost information.;The results of this study indicate that, while historical cost, constant dollar, and current cost returns on equity all possess the ability to explain security returns, only historical cost returns on equity possess incremental information content.
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