Du Plessis, D. P.; A che , A. A.; A leck-G a es, J. F.
A icle
The inc emen al in o ma ion con en o AC 201 in la ion-
adjus ed da a
Sou h A ican Jou nal o Business Managemen
P o ided in Coope a ion wi h:
Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica
Sugges ed Ci a ion: Du Plessis, D. P.; A che , A. A.; A leck-G a es, J. F. (1986) : The inc emen al
in o ma ion con en o AC 201 in la ion-adjus ed da a, Sou h A ican Jou nal o Business
Managemen , ISSN 2078-5976, A ican Online Scien i ic In o ma ion Sys ems (AOSIS), Cape Town,
Vol. 17, Iss. 1, pp. 1-6,
h ps://doi.o g/10.4102/sajbm. 17i1.1026
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/217913
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The
inc emen al
in o ma ion
con en
o
AC
201
in la ion-adjus ed
da a
D.P.
du
Plessis
Sanlam In es men s, Sanlamho
A.A.
A che
Uni e si y
o
S ellenbosch
Business
School, Bell ille
J.F.
A leck-G a es
G adua e School
o
Business, Uni e si y
o
Cape Town, Rondebosch
In his a icle
an
a emp is made o examine he ex en o which in la-
ion-adjus ed income igu es (de i ed om AC
201
da a) con ain
in o ma ion no included in he his o ic igu es cu en ly epo ed. The
use ulness (o in o ma ion con en ) c i e ion is examined om he
agg ega e ma ke pe spec i e h ough
an
empi ical examina ion s uc-
u ed o de e mine which se
o
igu es bes ep esen s he in o ma-
ion impounded
in
sha e p ices. The esea ch design inco po a es a
wo-s age eg ession app oach which pe mi s a de e mina ion
o
he
inc emen al explana o y powe
o
collinea a iables. The esul s
ob ained sugges ha he e a e in o ma ion con en di e ences
be ween in la ion-adjus ed and his o ic da a as measu ed h ough he
associa ion wi h sha e e u ns. Only o hose companies a ec ed o
a lesse ex en by he e ec s
o
in la ion could no disce nable
di e ence in in o ma ion con en be de ec ed. Ba his excep ion, he
esul s appea o suppo he hypo hesis ha in la ion-adjus ed da a
con ain in o ma ion ha is on agg ega e no e lec ed
in
he inancial
epo s cu en ly p oduced. Howe e , he con en ion ha his o ic
income also possesses in o ma ion beyond ha p o ided
by
in la ion-
adjus ed income is no suppo ed by he esul s. The esea ch
indings ha e impo an implica ions o epo ing policy in SA
ega ding he u u e o in la ion accoun ing equi emen s and seem o
sugges ha he
SA
Ins i u e o Cha e ed Accoun an s should
se iously conside making a o m
o
in la ion accoun ing manda o y.
S.
A .
J.
Bus. Mgm . 1986, 17: 1 - 6
In hie die a ikel wo d gepoog
om
e bepaal in wa e ma e in lasie-
aangepas e inkoms esy e s ( e k y ui
RE
201-da a) inlig ing be a wa
nie ingeslui is in die his o iese sy e s wa ans gepublisee wo d nie.
Die
k i e ium en opsig e
an
nu igheid (o inlig ingsinhoud) wo d
onde soek ui die globalema k-pe spek ie deu middel
an
'n
empi iese
onde soek wa daa op inges el is om e bepaal wa e s el sy e s die
inlig ing e a in aandeelp yse die bes e wee gee.
Die
na o singsme-
odiek om a 'n wee- ase- eg essiebenade ing, wa die ass elling
an
die eks a e duidelikingsk ag an saamlynige e ande likes moon llk
maak.
Resul a e dui daa op da daa e skille
in
inlig ingsinhoud
be-
s aan ussen in lasie-aangepas e- en his o iese da a, soos gemee
deu die e band me aandeelopb engs e. Slegs by daa die maa skap-
pye wa
in
'n minde e ma e deu die ui we king
an
in lasie bei'n loed
is, kon geen opme klike e skille in inlig ingsinhoud waa geneem
wo d nle. Benewens hie die ui sonde ing, skyn die esul a e die hipo-
ese
le
onde s eun da in lasie-aangepas e da a inlig ing be a wa ,
globaal geneem, nie wee gegee wo d in die inanslele e slae wa
ans e skyn nie. Daa en een wo d die bewa ing da his o iese lnkom-
s e ook inlig ing be a bo
en
behalwe die wee gegee deu die ln lasie·
aangepas e inkoms e, nie deu die esul a e be es ig nie. Hie die
na-
o sings esul a e he belang ike implikasies i die ekeningkundige
beleid
in
SA
me be ekking o die oekoms
an
die e eis es
an
in-
lasieboekhouding en skyn daa op e dui da die Suid-A ikaanse lns i-
uu
an
Geok ooiee de Rekenmees e s
dl
e ns ig moe oo weeg om
'n o m
an
ln lasieboekhouding e plig end e maak.
S.
A . Tydsk . Bed y sl.
1986,
17:
1-6
D.P.
du
Pleuls
Sanlam
In es men s, P
.0.
Box I, Sanlamho ,
7532
Republic
o Sou h A ica
A.A. A ca-•
Uni e si y
o
S ellenbosch
Business
School, P.O. Box 610,
Bell ille,
7530
Republic
o Sou h A ica
J.F.
A leck-G a es
G adua e
School
o
Business,
Uni e si y
o Cape Town, P i a e Bag,
Rondebosch,
7700
Republic
o
Sou h A ica
*To
whom
co espondence should
be
add essed
Accep ed
Augus
1985
In oduc ion
The
deba e as
o
whe he companies should be equi ed
o
epo in la ion-adjus ed
da a,
and
i so, wha he na u e
o
he equi emen s should be, has
d awn
enewed a en ion in
ecen yea s. This has occu ed because
o
he high a es
o
in la ion since he ea ly se en ies
and
he p ospec ha ela i e-
ly
high le els may pe sis in Sou h A ica (SA)
in
he u u e.
This s udy ocuses
on
a pa icula o m
o
accoun ing
o
changes in p ice le els - ha ecommended by he hen
Na ional Council
o
Cha e ed Accoun an s (SA) (now called
he SA Ins i u e
o
Cha e ed Accoun an s) in Guideline
AC
201
( o me ly Guideline 4.003)
o
Augus 1978. In publishing
Guideline
AC
201, he accoun ing p o ession in SA pa ed
he way o in la ion-adjus ed
da a
o
be disclosed. Howe e ,
o
da e only a ew companies ha e expe imen ed wi h he
ecommenda ions
o
his guideline. A possible eason o his
is
ha no company
will
o
i s own ee choice publish in la-
ion-adjus ed esul s
i
his could ad e sely a ec i s ma ke
a ing.
The SA Ins i u e
o
Cha e ed Accoun an s may ake u he
ac ion once e idence
has
been
submi ed ha in la ion-adjus ed
igu es a e use ul
o
he use s
o
accoun ing
da a,
i.e. ha
in la ion-adjus ed income con ey in o ma ion beyond
ha
which
is
cu en ly a ailable in his o ic cos epo s. An in es i-
ga ion in o he use ulness
o
he al e na i e/supplemen al se s
o
igu es
is
he e o e a esea ch ques ion wi h impo an
implica ions in SA o public policy ega ding he u u e
o
in la ion accoun ing equi emen s.
The
pu pose
o
his s udy
is
o
submi e idence
o
his ques ion.
An
analysis was he e o e unde aken
o
explo e he ex en
o
which in la ion-adjus ed
da a
con ain in o ma ion
no
in-
cluded in he his o ic
da a
cu en ly epo ed (i.e. he in o ma-
ion con en
o
he in la ion-adjus ed
da a
se which
is
in excess
o
ha which
is
con ained in he ela ed his o ic income
igu es).
The
use ulness (o in o ma ion con en ) c i e ion was
examined om he agg ega e ma ke pe spec i e h ough
an
empi ical examina ion s uc u ed
o
de e mine which se
o
igu es bes ep esen s he in o ma ion impounded in sha e
p ices.
Da a
The ini ial
se
o
companies conside ed in his s udy consis ed
o
all companies, lis ed in he indus ial sec ion
o
he
Johan-
nesbu g S ock Exchange (JSE), wi h inancial yea s ended in
he calende yea s
1975-1982.
The inal sample was p oduced by applying i e sample
selec ion c i e ia
o
he ini ial se
o
companies. Companies
2
con o ming o he c i e ia enume a ed below, anging om
he mos o he leas es ic i e,
we e
excluded o esea ch
pu poses:
(i) companies wi h inancial yea s no ending on June
30
o he en i e pe iod;
(ii) holding companies ha ca ied no s ockholding, and/o
whe e
he majo
in es men
was
ep esen ed
by
ano he
sample cons i uen ;
(iii) companies ha expe ienced
se e e
s uc u al changes,
including hose
o
which he lis ings
we e
shi ed om
he indus ial o o he sec ions
o
he JSE;
(i )
companies o
which
easonable es ima es
o
in la ion-
adjus ed da a could no
be
made eadily; and
( )
companies
o
which he lis ings
we e
suspended o
excessi ely
long pe iods.
The i s equi emen necessi a ed he exclusion
o
a con-
side able p opo ion
o
he
companies.
This
ex emely
es ic -
i e
c i e ion
was
equi ed
because
he me hodology employed
in his s udy necessi a ed he calcula ion
o
inancial yea -on-
yea di e ences in his o ic income and in la ion-adjus ed
income
espec i ely.
These di e ences
we e
hen di ided (o
scaled)
by
a balance
shee
de la o . A change
in
he inancial
yea end
o
a pa icula company would he e o e necessi a e
an annualiz.a ion
o
he a iables conce ned. The somewha
haphaza d cus oma y adjus men p ocedu e
was
a oided
by
es ic ing he sample o companies
wi h
he same inancial
yea h oughou he co e ed pe iod. June
30
p o ed o be
he mos common epo ing da e o hose companies ha
had
main ained
he same inancial yea o e he en i e pe iod.
Applica ion
o
he sample selec ion c i e ia p oduced a
sample
o
59
companies.
The
analysis
ocused
upon wo in o ma ional a iables, i.e.
he annual change
in
his o ic income and he annual change
in in la ion-adjus ed income, and hei ela ionship wi h
annual sha e e u ns. These a iables a e discussed in u n
in he
ollowing
pa ag aphs.
His o ic income
His o ic income
was
o he pu pose
o
his s udy de ined as
ea nings
a ailable
o o dina y sha eholde s, based on consol-
ida ed
ne
income o he inancial pe iod, a e o dina y and
o eign axa ion, and a e deduc ing ou side sha eholde s'
in e es s and p e e ence di idends, bu be o e ex ao dina y
and abno mal i ems.
His o ic income o a g oup
o
companies
was
he e o e
based on ope a ing p o i s a ibu able o membe s
o
he
holding company. De e ed axa ion
was
excluded om he
~cula ion
in an a emp o a oid possible dis o ions being
m oduced
as
a esul
o
ex eme luc ua ions
in
his axa ion
~mponei:i . Whe e he ea nings
o
associa ed companies
we e
mcluded
ma
company's income s a emen , he his o ic in-
come
was
based
on p o i s
exclusi e
o
associa ed companies'
esul s.
The annual change in his o ic income
was
o mula ed
as
ollows.
He
. - HI;., -HI;,, I
1,1
-I
J
(NAV;,,
+
NAV,,,
_ 1 + NA V1
.,
_ 2)
wh~e
HC;,, =
ch~nge_
i~
his o ic income
o
company ; in
penod
;
HI;,,= his onc
mcome
o
company i
in
pe iod
;
and
NAV;,,=ne asse alue
o
company i a he end
o
pe iod,.
N~
~
~ue
was
compu ed
by
adding all he asse s
(a-
cluding
m angi~les),
and
_ hen
sub ac ing all
liabili ies,
p e e -
ence sha e capi al, ou side sha eholde s' in e es s, de e ed
S.-A . Tydsk . Bed y sl.
1986,
17(1)
axa ion and e alua ion su pluses. Simila de la o s
we e
used
by
Ba -Yose &
Le
(1983:43) and Mo is &
McDonald
(1982:388).
In la ion-adjus ed income
In la ion-adjus ed income was o he pu pose
o
his
s udy
de ined
as
his o ic income (see de ini ion abo e) adjus ed
o
he e ec s
o
changing p ice le els, in acco dance
wi h
he
ecommenda ions
o
Guideline AC
201.
(In la ion
adjus men s
we e
gene a ed
by
means
o
he in la ion accoun ing
model
o
he Uni e si y
o
S ellenbosch Business School. The
eade
is
e e ed o A che (1980:94-141) o a de ailed
discussion
o
his
model.)
The po ion
o
he in la ion-adjus men
acc u-
ing
o ou side sha eholde s' in e es s
was
aken in o
conside a-
ion in a i ing a he es ima e o in la ion-adjus ed
income.
I p ice
le els
did no change, in la ion-adjus ed income
and
his o ic income would,
o
cou se, ha e been iden ical.
I should
be
no ed ha
.a
ew
o
he companies
included
in he s udy published in la ion-adjus ed da a in he
o m
o
a supplemen a y cu en cos income s a emen . In o de
o
acili a e uni o mi y in he adjus men p ocedu e,
such
com-
pany-yea obse a ions we e excluded. In addi ion,
companies
which employed he lip- lop LIFO (las -in- i s -ou )
accoun -
ing
me hod, which ci cum en s any epo ed ea nings
educ-
ion ha
would
o he wise ha e
a isen
wi h he
use
o
he
LIFO
me hod
o
s ock alua ion, we e also excluded.
The annual change in in la ion-adjus ed
income
was
o mu-
la ed as ollows.
RC.
-
RI;,,
-
RI;,,
-I
,.,
- I (NAV
J
1.,
+ NAV;.,-1 + NAV;,,-2)
whe e RC;,,= change in in la ion-adjus ed income
o
company
i in pe iod
;
and RI;,,= in la ion-adjus ed income
o
company
i in pe iod
.
All
o he symbols a e
as
desc ibed be o e.
Sha e e u ns
A cumula i e abno mal e u n (CAR) was compu ed
o
each
company o he du a ion
o
each inancial yea om
1976
h ough
1982,
using in e cep and slope coe icien s
es ima ed
om a ime
se ies
eg ession based
on
he p e ious wo
yea s.
The ini ial inancial yea holding pe iod assump ion
was
hen
ex ended o include ou al e na i e annual holding
pe iods
(s a ing wi h Sep embe
30
h ough Sep embe
30
and
ending
wi h Decembe
31
h ough Decembe
31).
The CAR was compu ed as ollows.
(i) P ice ela i e e u ns (i.e. e u ns unadjus ed o
isk)
we e calcula ed o a company's o dina y sha es
on
a
bi-weekly basis, using he ollowing o mula ion.
(ii)
R. -
P;,,
-P;,,- I +
D;,,
,.,-
P;,,-1
whe e
R;,,
=
ex
pos (i.e. ealized) e u n on
sha e
i
in
pe iod
;
P;,, = closing p ice
o
sha e i a he
end
o
pe iod
;
and D,., = di idend
o
sha e i in
pe iod
(i.e.
exdi idend da e :i hin pe iod );
Re u ns on he
m~· ke ,
as ep esen ed by app op ia e
sha e-p ice and di, idend indices, we e calcula ed
as
ollows.
R -(Im., · ·
lm,
-
')
1Jlm, n )
m -
-+
(,--x-
•
J,,._,
_ 1
100
36S
whe e
Rm.,=
ex
pos
e u n
o
ma ke po olio
in
pe iod
( he JSE Ac ua ies lndus ial sha e-p ice and
di idend
indices we e used
as
a su oga e o he ma ke );
Im.,=
index alue a he
end
o
pe iod
;
Dim.,=
di idend
in<lel
ll
s.
A . J. Bus. Mgm . 1986, 17(1)
o
ma ke po olio (exp essed in pe cen age e ms) a
he end
o
pe iod ;
and
n = numbe
o
days be ween
he end
o
pe iod
and
he end
o
pe iod -
1.
(iii) Because his s udy e alua es in o ma ional a iables as
hey ela e
o
he indi idual company, hei in o ma ion
con en should be assessed ela i e
o
changes
in
he a e
o
e u n
on
he company's sha es ne
o
ma ke -wide
e ec s. This s ep he e o e in ol ed he elimina ion
o
he o e all ma ke e ec s om p ice ela i e e u ns and
he adjus men o
he
isk le el
o
he sha e, using he
amilia ma ke model (Ma kowi z,
1952
and
Sha pe,
1963).
R;,,
=
a;
+
l3;Rm.1
+
e;,,
whe e
e;.,
= esidual (o abno mal) e u n o sha e i in
pe iod
;
and
a;,13;
= eg ession pa ame e s. All o he
symbols a e as desc ibed be o e.
Using he es ima ed eg ession pa ame e s, ii
and
~.
he bi-weekly abno mal e u n o sha e i can be
es ima ed
as
ollows
e;,,
=
R;.,
-
Ai.I
whe e
R;,,
= expec ed e u n
on
sha e i in pe iod
(R;,,
=
a;.,+
~;Rm.,). All o he symbols
a e
as desc ibed
be o e.
As
he
abo e p ocedu e abs ac s om he gene al
ma ke condi ions
and
he ma ke
is
belie ed
o
adjus
easonably quickly
and
e icien ly
o
new in o ma ion,
he esiduals will ep esen he impac
o
new in o ma-
ion abou
company
i alone.
(i )
The se ies
o
bi-weekly abno mal e u ns we e agg ega ed
in o annual measu es, using he ollowing me hodology.
n,
CAR;, T = I:
e;.,
I=
I
whe e CAR;.
T=
cumula i e abno mal e u n
o
com-
pany i in pe iod
T;
and
nT=
numbe
o
bi-weekly in e -
als in pe iod
T.
All o he symbols a e as desc ibed
be o e.
No e ha he ea e will deno e yea , a he
han
a bi-
weekly in e al.
The
CAR
measu es he cumula i e e ec s
o
he de ia ions
o
he sha e e u ns om hei no mal ela ionship wi h he
ma ke (Fama, Fishe , Jensen & Roll,
1969:
8).
The
CAR
can
clea ly be ei he sys ema ically posi i e
o
nega i e
(i.e.
non-ze o),
o
can display unsys ema ic (i.e. ze o) esidual
beha iou . This
CAR
was used as dependen a iable in he
wo-s age eg ession analysis desc ibed below
and
oge he
wi h he
HC
and
RC se ies o med he basic
da a
used in
his s udy.
Resea ch
me hodology
F om
an
in o ma ional pe spec i e he cen al issue in his
s udy e ol es
a ound
he
ollowing wo ques ions:
(i)
Do in la ion-adjus ed income igu es p o ide in o ma-
ion (i.e. addi ional explana o y powe ) o e and abo e
ha p o ided by his o ic income igu es?
(ii)
Do his o ic income igu es p o ide in o ma ion o e and
abo e ha p o ided by in la ion-adjus ed income
igu es?
Acco dingly, hese a e he wo hypo heses ha will be es ed.
I
is
impo an
o
no e ha he wo ea nings a iables a e
no necessa ily mu ually exclusi e ega ding hei espec i e
in onna ion con en . Bo h his o ic income
and
in la ion-
adjus ed income sha e
common
ac o s
ha
could explain a
3
c oss-sec ional a ia ion in sha e e u ns.
The
le el
o
expla-
na o y powe p o ided
by
knowledge
o
mo e
han
one a i-
able mus he e o e be compa ed wi h he explana o y powe
p o ided by knowledge
o
only one
o
he a iables.
To
examine his issue, wo-s age eg ession analyses
we e
conduc ed. The app oach adop ed
was
simila
o
ha employ-
ed by Ba -Yose & Le
(1983);
Bea e , G i in & Landsman
(1982);
and
Pa ell & Kaplan (in Bea e , G i in & Lands-
man,
1982:27)
and consis ed
o
conduc ing eg essions ac oss
all company-yea obse a ions, i.e. a pooled c oss-sec ional
app oach. This pa icula p ocedu e was adop ed o he
ollowing easons.
(i)
When he independen a iables
in
a eg ession a e
co ela ed among hemsel es, in e co ela ion
o
mul i-
collinea i y
is
said
o
exis among hem. The p esence
o
mul icollinea i y makes he in e p e a ion
o
esul s
di icul
and
misleading. In pa icula , he inc emen al
explana o y powe
o
each in o ma ional a iable be-
comes blu ed. Inco po a ing se e al ea nings measu es
in
one
eg ession equa ion as independen a iables,
would clea ly esul in mul icollinea i y.
The
wo-s age
eg ession app oach, howe e , pe mi s he de e mina ion
o
he inc emen al (i.e. addi ional) explana o y powe
o
collinea a iables.
(ii) The ea nings a iables a e no ea ed as being mu ually
exclusi e.
(iii)
The
magni ude as well as he sign
o
he ea nings
a iables a e inco po a ed.
The inc emen al in onna ion con en o in la ion-
adjus ed income
This sec ion deals wi h an examina ion
o
he
i s
hypo hesis,
namely ha in la ion-adjus ed income does no p o ide in o -
ma ion o e
and
abo e ha p o ided by his o ic income
igu es. The me hodology employed
is
b ie ly summa ized
below.
(i)
The
annual change in in la ion-adjus ed income, RC,
was eg essed
on
he annual change in his o ic income,
HC,
o
ob ain a esidual, Z, which
is
by cons uc ion
unco ela ed wi h
HC.
RC;,,=
a+
PHC;., +
Z;.,
whe e RC;.,= change in in la ion-adjus ed income
o
company i
in
pe iod
;
HC;,, = change
in
his o ic income
o
company i in pe iod
;
Z;,, =
andom
dis u bance (o
esidual) a iable
o
company i in pe iod
;
and
a,13
=
e-
g ession pa ame e s.
The
o dina y leas squa es es ima e
o
13
was 0,99 (I
alue
o
68,20).
The
alue
o
he
R'-
s a is ic
was
0,92
which
is
signi ican a he 1
OJo
le el. I
can
he e o e be
concluded ha a signi ican p opo ion
o
he in o ma-
ion con en
o
in la ion-adjus ed
income
is
also
included
in he his o ic igu e.
(ii)
The
annual cumula i e abno mal e u n, CAR, was hen
eg essed
on
HC
and
Z.
CAR;.,=
a+
132HC;,,
+
13zZ;,,
+
U;,,
whe e CAR;.,= cumula i e abnonnal e u n
o
company
i in pe iod
;
and
U;,,
= andom dis u bance a iable
o
company i
in
pe iod
.
All
o he symbols a e as desc ibed
be o e.
I
RC
possesses in onna ion
no
p o ided
by
HC,
he eg ession coe icien ,
132,
on
he esidual,
Z,
should
be di e en om ze o.
The
null hypo hesis he e o e
s a es ha he eg ession coe icien , lh, in he popula-
4
ion
is
no di e en om ze o (i.e.
RC
does no possess
explana o y powe no p o ided by HC).
(iii) This hypo hesis was es ed using he amilia
.
es ..
Resul s o he second-s age eg ession
a e
summa ized m
Table
l.
I
can
be seen
ha
he
132
coe icien
is
insigni ican
a con en ional le els in all he holding pe iods examined.
One
is he e o e unable
o
ejec he null hypo hesis
and
hence
canno conclude ha in la ion-adjus ed income igu es
possess-
ed in o ma ion beyond ha p o ided by he his o ic igu es.
Table
1 Inc emen al in o ma ion con en
o
in la ion-
adjus ed income: summa y o esul s o second-s age
eg essions
Holding pe iod ended
Jun
Sep Oc No
Dec
13,
0,79
1,01
),))
1,05
1,11
alue
4,41
3
6,31
3 6,653 6,11• 6,21•
132
0,18 0,68 0,48 0,89
1,01
alue 0,29 1,20 0,82
1,48
),62
R2
0,05 0,10 0,10 0,09 0,10
Numbe
o
companies
59 59 59
59
59
Numbe
o
company-yea
obse a ions
388 388 388 388
388
•oeno es signi icance a he 5% le el.
The
inc emen al
in onna ion
con en
o
his o ic
income
I
could pe haps be a gued
ha
he o me p ocedu e was
a a he se e e es
o
impose
on
in la ion-adjus ed income.
I
RC
and
HC
a e highly co ela ed, i
is
no un easonable
o
belie e ha he wo a iables possess a conside able
amoun
o
common
explana o y powe wi h espec
o
sha e e u ns
(i.e.
he in o ma ional a iables a e no mu ually exclusi e).
In his sec ion he wo-s age model was he e o e e e sed
and
un
in he opposi e di ec ion.
The
p ocedu e employed was as ollows.
(i)
HC
was eg essed
on
RC
o
ob ain a esidual, Z, which
is
by cons uc ion unco ela ed wi h RC.
HC;,1
=a+
l3RC;,1
+
Z;,1
whe e all he symbols a e as desc ibed be o e.
This eg ession yielded a
13
es ima e
o
0,94 ( alue
o
68,20)
and
an
R2 s a is ic
o
0,92 which, as be o e,
is
signi ican
a
he l % le el.
(ii) The
CAR
was hen eg essed
on
RC
and
Z.
CAR;,1=a+l31RC.1+132Z;,,+
U;,1
whe e all he symbols
a e
as desc ibed be o e.
I
HC
possesses in o ma ion no p o ided by
RC,
he eg ession coe icien ,
132,
on
he esidual,
Z,
should
be di e en om ze o.
The
null hypo hesis he e o e
s a es
ha
he eg ession coe icien ,
132,
in he popula-
ion
is
no di e en om ze o (i.e.
HC
does no possess
explana o y powe no p o ided by RC).
(iii) This hypo hesis was es ed using he amilia es .
Resul s o he second-s age eg ession a e summa ized in
Table 2. Analysis
o
he esul s indica es
ha
once again none
o
he
132
coe icien s we e signi ican ly di e en om ze o
a
con en ional le els. The e o e
one
canno conclude
ha
his o ic income igu es possess in o ma ion beyond
ha
p o-
ided by in la ion-adjus ed igu es.
S.-A . Tydsk . Bed y sl.
1986,
17(1)
Table2 Inc emen al in o ma ion con en
o
his o ic
in-
come: summa y
o
esul s o second-s age eg essions
Holding pe iod ended
Jun
Sep Oc No
Dec
13,
0,75 1,00 1,08
1,05
1,12
alue
4,31
3 6,403 6,62· 6,28• 6,483
132
0,61 0,34 0,64 0,17
0,11
alue 0,95 0,59 1,05 0,27 0,18
R2
0,05 0,10 0,10 0,09 0,10
Numbe
o
companies
59 59
59 59
59
Numbe
o
company-yea
obse a ions 388 388 388 388
388
"Deno es signi icance a he
50/o
le el.
The
esul s p esen ed in
he
p e ious
wo
sec ions, appea
o
sugges
ha
bo h
se s
o
igu es
a e
subs i u es o one
ano he . In
bo h
cases he alue
o
he R2 s a is ic in he i s -
s age eg ession was
o
he
o de
0,90, indica ing
ha
abou
90%
o
he a ia ion in
one
income measu e
can
be explained
by he
o he
income measu e.
The
esul s
o
he second-s age
eg ession indica e ha he emaining a ia ion (i.e. app oxim-
a ely
10%)
does no signi ican ly explain
he
CAR. Conse-
quen ly he e seems li le alue in equi ing
bo h
his o ic and
in la ion-adjus ed igu es
o
be epo ed.
The
e ec
o
in la ion
The
o egoing esul s seem
o
indica e
ha
li le bene i would
acc ue
o
sha eholde s we e i
o
become
manda o y
o
companies
o
disclose
bo h
his o ic
and
in la ion-adjus ed
income igu es. Such a conclusion could, howe e ,
be
an
o e simpli ica ion because, in he absence
o
in la ion, one
would no expec he
wo
se s
o
numbe s
o
con ain di e en
in o ma ion. Indeed,
bo h
Bea e , Ch is ie & G i in
(1980:
145)
and
Gheya a
&
Boa sman
(1980:
114)
s uc u ed hei
s udies
on
he supposi ion
ha
in o ma ion
con en was mo e
in e es ing o companies a ec ed
o
a g ea e ex en
by
in la ion. Because he esul s p esen ed in
he
p e ious wo
sec ions we e a e ages
o
he en i e sample
o
59 companies,
i
is
possible
ha
he signi icance
o
he
in la ion-adjus ed
igu es was dissipa ed
by
he p esence
o
se e al companies
ela i ely una ec ed by in la ion. I was he e o e decided o
epea he analysis a e segmen ing
he
sample in o h ee
subg oups
on
he
ollowing basis.
Fi s ly, he companies we e
anked
in e ms
o
he
impac
o
in la ion
on
hei his o ic income. This impac was measu -
ed
by
he absolu e di e ence be ween a
company's
his o ic
income
and
in la ion-adjus ed income.
In
o de
o
ob ain a
ela i e measu e, his di e ence was scaled by he a e age ne
asse alue
on
a his o ic cos basis.
The
in la ion impac was o mula ed as ollows
II. _
RI;.1
-
HL,1
,.
-I
2 (NA V;,1 + NA V;,1 -
1)
whe e
Il;,1
= in la ion impac
o
company
i in pe iod
;
Rl;,1
==
in la ion-adjus ed income
o
company
i in pe iod
;
HL.1
= his o ic income
o
company
i in pe iod
;
and
NA
V;,,
= ne asse alue
o
company
i a
he
end
o
pe iod
.
The
in la ion impac was exp essed in e ms
o
an
a e age
igu e, calcula ed as he a i hme ic a e age
o
he
se ies
o
annual
igu es o e he
du a ion
o
he
esea ch pe iod. An
a e age measu e was used in
an
a emp
o
smoo h
possible

S.
A .
J.
Bus.
Mgml.
1986, 17(1)
wide
luc ua ions in he annual in la ion impac as a esul
o
ac o s pe aining
o
he economy.
The op end
o
he anking comp ised hose companies
su e ing om se e e in la iona y p essu e (i.e. companies
whe e
in la ion had a la ge impac on his o ic income), whe e-
as
he ail end was made up
o
hose ha had been ela i ely
success ul in hedging in la ion (i.e. companies whe e in la ion
had a small impac
on
his o ic income).
Finally, he a e age in la ion impac igu es we e used o
pa i ion he anked companies in o h ee app oxima ely
equal-sized subg oups. These g oups we e labelled om A
o
C, wi h he companies in g oup A being a ec ed he mos ,
and companies in g oup C being a ec ed he leas by he
impac
o
in la ion on hei his o ic income.
Fo he high in la ion impac g oup (i.e. g oup
A)
he i s -
s age
eg ession esul ed in
an
R2 alue
o
0,87, indica ing
ha he e was a high deg ee
o
co-mo emen be ween his o ic
and in la ion-adjus ed income igu es. Indeed, as much as
870/o
o
he a ia ion in one income igu e could be explained
by
he o he income igu e.
Resul s o he second-s age eg ession a e summa ized in
Table
3.
I
can be seen ha he inc emen al in o ma ion
con en
o
in la ion-adjus ed income,
lh
is
signi ican
in
bo h
he
No embe and Decembe holding pe iods. This would be
consis en wi h he hypo hesis ha o he high in la ion
impac companies, in la ion-adjus ed income igu es possess
in o ma ion in addi ion
o
ha p o ided by his o ic igu es.
The ac ha
~2
was insigni ican a con en ional
le els
o
he
June, Sep embe
and
Oc obe holding pe iods,
is
a cause
o
some conce n. Howe e , Knigh
(1983:118)
has shown ha
o
SA
companies, much
o
he in o ma ion con en in ea n-
ings
numbe s
is
unan icipa ed by he ma ke . Consequen ly
he lack
o
signi icance in he June, Sep embe and Oc obe
holding pe iods, can p obably be asc ibed o he ac ha no
all
o
he companies had eleased hei p elimina y epo s
a
hese s ages.
The con e se, howe e , does no appea
o
hold, i.e. in
none
o
he holding pe iods examined did he his o ic igu es
Table
3 Inc emen al in o ma ion
con en
o
in la ion-
adjus ed and
his o ic
income: summa y
o
esul s
o
second-s age eg essions
o
high in la ion impac
g oup
(i.e.
g oup
A)
Inc emen al
Holding pe iod ended
in o ma ion
con en Jun Sep
Oc
No
Dec
!n la ion-adjus ed
income:
P1
0,88
1,48 1,52 1,43 1,64
I
alue
2,59b
4,51b
4,35b 4,05b
4,55b
Pz
(1,07) 1,44
1,02
2,56
2,69
alue
(1,09) 1,52 1,02 2,52b
2,58b
Rz
0,06 0,16
0,14
0,16
0,19
His o ic
income:
61
0,71
1,61
1,58 1,70
1,92
I
alue
2,03b 4,76b 4,43b 4,68b 5,17b
Pz
1,85 0,17 0,59 (0,90) (0,80)
I
alue
1,95•
0,18
0,60
(0,91)
(0,79)
Numbe
o
companies
20
20 20 20
20
Numbe
o
company-yea
obse a ions
122 122 122 122
122
:Deno es
signi icance
a he
10%
le el.
Deno es
signi icance
a he 5%
le el.
5
possess in o ma ion beyond ha p o ided by he in la ion-
adjus ed igu es. The e o e, o he high in la ion impac
g oup
i
would appea ha he wo se s
o
igu es
do
no
p o ide iden ical in o ma ion. The esul s
in
ac seem o
sugges ha wo al e na i es exis , namely:
(i) ha bo h se s
o
income igu es should be p o ided;
o
(ii)
i only one se
o
igu es
is
o
be p o ided
i
should be
he in la ion-adjus ed igu es.
Fo he low in la ion impac g oup (i.e. g oup C), he i s -
s age eg ession esul s yielded an R2 alue
o
0,95
which
indica es he 95%
o
he a ia ion
in
one income measu e
could be explained by he o he income measu e. This
is
highe
han he 0,87 o he high in la ion impac g oup, bu
is
o
be
expec ed as one would an icipa e a highe deg ee
o
co-
mo emen be ween he wo se s
o
income igu es o he
lowe in la ion impac g oup.
Resul s o he second-s age eg ession a e summa ized in
Table 4. None
o
he
~2
coe icien s a e signi ican which
p o ides suppo o he hypo hesis ha bo h se s
o
income
igu es a e subs i u es o each o he and nei he possess any
inc emen al in o ma ion.
Table
4 Inc emen al in o ma ion con en
o
in la ion-
adjus ed and his o ic income: summa y
o
esul s
o
second-s age eg essions o low in la ion impac g oup
(i.e. g oup C)
Inc emen al Holding pe iod
ended
in o ma ion con en Jun
Sep
Oc
No
Dec
In la ion-adjus ed
income:
ll1
2,73
1,82
1,67
1,24
1,55
alue
5,51° 3,91° 3,39a 2,59•
2,96°
lh
1,49 3,09 2,75 1,84 2,70
I
alue
0,67 1,47 1,24 0,85 1,14
Rz
0,27 0,17 0,13 0,08 0,11
His o ic
income:
P1
2,73
1,93
1,76
1,30
1,65
I
alue
5,52°
4,14"
3,58.
2,71"
3,14
8
lh
1,28
(1,19) (1,02)
(0,55)
(1,08)
alue
0,57 (0,57) (0,46) (0.26) (0,46)
Numbe o
companies
15 15
15
15 15
Numbe o
company-yea
obse a ions
88
88 88 88
88
"Deno es signi icance a he 5%
le el.
In concluding his sec ion,
i
can
be
said ha he esul s
ob ained sugges ha he e a e in o ma ion con en di e ences
be ween in la ion-adjus ed and his o ic da a as measu ed
h ough he associa ion wi h sha e e u ns. Only o hose
companies a ec ed o a lesse ex en by he e ec s
o
in la ion
could no disce nable di e ence
be
de ec ed in in o ma ion
con en . Fo he high in la ion impac g oup he esul s appea
o suppo he hypo hesis ha in la ion-adjus ed da a con ain
in o ma ion which
is
on agg ega e no e lec ed in he inancial
epo s cu en ly p oduced. Howe e , he con en ion
~a
his o ic income
also
~
in o ma ion beyond ha p o id-
ed by in la ion-adjus ed income
is
no suppo ed by he esul s.
Al hough no
o
cen al conce n
o
his s udy, i
is
ne e -
heless in e es ing
o
no e ha in all
o
he second-s age
eg essions, he
~1
coe icien
was
signi ican a h~ 5% le el.
This con i ms ha ea nings in onna ion, whe he m he o m
6
o
his o ic
income
o in la ion-adjus ed income,
does
signi ic-
an ly explain abno mal e u ns
o
sha es lis ed on he JSE.
Mo eo e , an examina ion o he
second-s age
esul s
indica es
ha he s a is ics a e subs an ially
highe
o he Sep embe ,
Oc obe , No embe and Decembe holding pe iods han o
he
June
holding
pe iod.
As
p e iously
men ioned
his
p obab-
ly
occu s
because
he
elease
o
he ea nings in o ma ion only
occu s du ing he mon hs Sep embe o Decembe . These
esul s he e o e con i m hose
o
Knigh
(1983:
130)
who
concluded ha he ac ual
elease
o he ea nings numbe
does
p o ide in o ma ion o sha eholde s;
in
o he
wo ds
ha
such
in o ma ion
is
no consis en ly an icipa ed
by
he ma ke .
In
o de o
emo e
any
possible
scep icism
which
may
cloud
he esul s ob ained om a ela i ely
small
sample, he en i e
s a is ical analysis
was
duplica ed o a holdou sample. The
second
(i.e.
holdou )
sample
was
chosen
using
he
same
c i e ia
as
applied o he ini ial
se
o
companies,
wi h
he excep ion
o
he
i s
c i e ion
which
was
ammended o include com-
panies ha ing a inancial
yea
ended on Decembe
31
o he
en i e pe iod. In o al
29
companies quali ied o inclusion
in
he holdou sample.
The esul s ob ained
o
he holdou sample
(i.e.
Decembe
yea end companies)
we e
simila o hose ob ained o he
o iginal sample (i.e. June yea end companies). Hence he
conclusions d awn can
be
conside ed o
be
alid o
all
com-
panies du ing he pe iod unde s udy.
Conclusions
and
Recommenda ions
In
his
a icle an a emp
has
been
made o
examine
he ex en
o
which
in la ion-adjus ed da a con ain in o ma ion no
included
in
he
his o ic
da a cu en ly epo ed.
The
use ulness
(o in o ma ion con en ) c i e ion
was
examined om he
agg ega e ma ke pe spec i e h ough an empi ical examina-
ion s uc u ed o
de e mine
which
se
o
igu es
bes
ep esen -
ed he in o ma ion impounded in sha e p ices. The main
conclusions o
be
d awn om he esul s can
be
summa ized
as
ollows.
(i)
His o ic
income
and in la ion-adjus ed income a e good
subs i u es o one ano he and each numbe can
ex-
plain app oxima ely 90%
o
he a iabili y
in
he o he
measu e.
(ii) His o ic
income
does
no appea o
possess
any in o ma-
ion
in
addi ion o ha p o ided
by
he ela ed in la ion-
adjus ed igu e.
(iii)
In
ce ain
cases,
pa icula ly
whe e
a company
is
highly
a ec ed
by
in la ion, he in la ion-adjus ed income
igu es
do appea o
possess
in o ma ion
o e
and abo e
ha p o ided
by
he his o ic igu es.
The conclusions mus ,
howe e ,
be
empe ed
wi h
he
usual
ca ea s, i.e. he esul s migh
be
due
o:
(i)
he pa icula me hodology chosen·
(ii)
he company-yea obse a ions in ~ iga ed·
(iii) some ex aneous ac o ; and '
(i )
andom e en s.
Al hough
cogniz.ance
mus
be
aken
o
hese
possible
d aw-
backs, he esul s ne e heless indica e ha
in
he absence
o
he disclosu e o in la ion-adjus ed da a, he
esea ch
indin
can
be
in e p _e ed
~
~
indica ion ha ma ke pa icipan~
a emp o adJus his onc da a o changes
in
he pu chasing
powe
o
money, and ha
hey
base
hei
in es men
decisions
on ?e ~es a ~. da a. I such an in e p e a ion
is
plausible,
and
1 ,
_m
addi 10?, accoun an s
ha e
a ela i e ad an age
in
p oducmg
C:manc al
da a,
i
is
possible ha manda o y
dis-
closu e eqw emen s o in la ion-adjus ed da a could educe
S.-A . Tydsk . Bed y sl.
1986,
17(1)
he
eal
esou ces needed o gene a e he es a ed da a.
This
is
ue because such disclosu e equi emen s would
elimina e
he need o ma ke pa icipan s o adjus inancial
epons
o changes
in
p ice
le els,
and shi he esponsibili y
o
companies and hei accoun an s.
I
should also
be
kep
in
mind ha ma ke pa icipan s
and
managemen a e no he only audience
o
accoun ing
dis-
closu es.
I
is
ce ainly possible ha o he audiences
may
ind
he disclosu e
o
in la ion-adjus ed da a in o ma i e.
Fo
example,
legisla i e
hinking ega ding he me i s
o
company
ax on 'phan om p o i s' may
be
al e ed
by
such
disclosu e.
In his ega d
i
has o
be
bo ne
in
mind ha in la ion
p o i s
should no
be
dis ibu ed o sha eholde s,
as
capi al
has
o
be
main ained
in
o de o ca y on business a he
same
le els
as
be o e. Simila ly he
iscus
should no claim
axes
on
hese
p o i s.
Fu he mo e,
in
a ecen ex ensi e analysis
o
in e na ional
accoun ing s anda ds, SA pe o med a he poo ly
(Sunday
Times,
Business
Times,
Ma ch l
l,
1984).
In e na ional
Accoun ing Bulle in's Su ey
o
Accoun s and Accoun an s
1983/84
anked
SA
l l h
o
he
17
coun ies whe e
10
o
mo e
annual epo s
we e
analysed.
O
pa icula signi icance
is
he
ac ha he analysis ga e SA companies a poo a ing
on,
among o he s, changing p ices da a.
I
is
he e o e appa en ha he SA Ins i u e
o
Cha e ed
Accoun an s should se iously conside making a
o m
o
in la ion accoun ing manda o y.
Acknowledgemen s
The au ho s
wish
o acknowledge inancial suppo
by
he
Human
Sciences
Resea ch Council, and p og amming
assis-
ance by M W.R. Ge e s
o
he Uni e si y
o
S ellenbosch
Business School.
Re e ences
Accoun ing P ac ices Commi ee.
1978.
Guideline on disclosu e
o
e ec s
o
changing p ices on inancial esul s no
AC
201
( o me ly no 4.003). Johannesbu g: Na ional Council
o
Cha e ed Accoun an s (SA), 6p.
A che , A.A.
1980.
The
ele ance
o
Guideline 4.003
(o
he
SA
Ins i u e
o
Cha e ed Accoun an s)
o
inancing and di idend
policy decisions. Unpublished doc o al disse a ion. Uni e si y
o
S ellenbosch, 445p.
Ba -Yose ,
S.
& Le ,
B.
Ma ch-Ap il
1983.
His o ical cos
ea nings e sus in la ion-adjus ed ea nings in he di idend
decision.
Fin.
Anal. J.,
41
-50.
Bea e ,
W.H.,
Ch is ie, A.A. & G i in,
P.A.
Augus
1980.
The
in o ma ion con en
o
SEC Accoun ing Se ies Release No
190.
J.
Accoun . Econ.,
131-
157.
Bea e ,
W.H.,
G i in,
P.A.
& Landsman,
W.R.
July
1982.
The
inc emen al in o ma ion con en
o
eplacemen cos ea nings.
J.
Accoun . Econ.,
15-
39.
Fama,
E.F.,
Fishe , L., Jensen,
M.C.
& Roll, R. Feb ua y
1969.
The adjus men
o
s ock p ices
o
new in o ma ion. In e n.
Econ. Re . I - 21.
Gheya a,
K.
& Boa sman,
J.
Augus 1980. Ma ke eac ion o
he
1976 eplacemen cos disclosu es.
J.
Accoun . Econ.,
107-125.
Knigh , R.F.
1983.
The associa ion be ween published accoun ing
da a and he beha iou
o
sha e p ices. Unpublished doc o al
disse~ a ion. Uni e si y
o
Cape Town, 359p.
Ma kowi z, H. Ma ch
1952.
Po olio selec ion.
J.
Fin.,
77
-
91.
Mo is,
M.H.
& McDonald,
B.
Au umn 1982. Asse p icing and
inancial epo ing wi h changing p ices.
J.
Bus.
Fin.
Accoun .,
383-395.
Sha pe, W.F. Janua y 1963. A simpli ied model o po olio
analysis. Mgm . Sci.,
277-293.
Sunday Times, Business Times. Ma ch
11,
1984.