The incremental information content of AC 201 inflation-adjusted data

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 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ 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. 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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.