The association between market risk and accounting risk alternatively measured.

摘要

In 1979, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 33 which mandated the reporting of current cost and constant-dollar information for the larger corporations in the United States. The Board termed the Standard "experimental" and invited research into the usefulness of the information.;This study sought to investigate the incremental explanatory power of current cost information over that provided by historical cost information in the assessment of market risk. In addition, the incremental explanatory power of historical cost information over that provided by current cost information was also investigated.;In order to carry out this study, assumptions of the Market Model were employed. Market beta was selected as the dependent variable, and a group of accounting risk measures were selected as the independent variables. The variables selected for their theoretical and empirical relationship to market beta were financial leverage, operating leverage and accounting beta. Current ratio, dividend payout and asset size were selected for their empirical relationship to market beta.;A sample of firms was selected from the COMPUSTAT and Value Line Statement No. 33 data bases. Market betas published by Value Line Investment Service were utilized and accounting ratios were calculated under both historical cost and current cost formulations. Separate reduced form regressions utilizing historical cost and current cost variables separately were run first, then full form regressions which included both alternative sets of variables were run. The Chow Test was then used to test whether statistically significant improvement was present.;Three hypotheses were proposed: one focusing on the entire sample; a second on samples based on industry membership; and a third based on financial leverage characteristics.;The findings of the study were that in 26% of the tests, current cost information provided statistically significantly improved explanatory power over that provided by historical cost. In the historical cost added version, 8% provided similar improved explanatory power. Therefore, the conclusion may be drawn that both historical cost information and current cost information are useful in the assessment of market risk.