The Information Effects of Current Cost Income as Compared to Dividends and Historical Cost Income
Schaefer, Thomas Francis
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https://hdl.handle.net/2142/71374
Description
Title
The Information Effects of Current Cost Income as Compared to Dividends and Historical Cost Income
Author(s)
Schaefer, Thomas Francis
Issue Date
1983
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Accounting
Abstract
The purpose of this research was to determine whether CCIFCO, as required by SFAS No. 33, was able to provide additional information pertinent to the value of the firm beyond the contemporaneous dividend and historical income per share signals. The information effect was assessed by reference to security return behavior. The research design allowed for the detection of such an information effect through either an incremental or complementary relationship between CCIFCO and dividends in a joint signaling context. The reported effects were marginal in the sense that historical cost income first differences were controlled for in the determination of the sampling unit.
The joint signaling properties of dividends and CCIFCO were provided by deviations from their expected values as determined by various empirical and naive expectation models. These deviations were used to define signals considered useful in assessing security return impacts. Portfolios of securities were formed on the basis of the ranked values of the information signals. Differences in returns adjusted for systematic risk and historical income were examined for statistically significant differences.
The methodology used in this study did not result in the selection of portfolios, based upon CCIFCO signals, which were able to earn significantly higher adjusted returns. In many cases, the further subdivision of firms by the ultimate ranking of the CCIFCO signal resulted in adjusted portfolio returns opposite to that which would be expected from an income measure. The research design and metholology were unable to support the possible alternatives of CCIFCO providing information with dividends either through an incremental or complementary relationship.
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