Accounting Principle Formulation in an Efficient Markets Environment

Abstract

In this paper we present the results of a study designed to assess the effect on security price behavior of actions taken by the Accounting Principles Board. In the latter part of 1971 the Board took a significant step toward narrowing the accounting alternatives available to the oil and gas industry. The circumstances surrounding this action make it possible to investigate whether the market attaches importance to these accounting alternatives and to the Board's Opinion. We begin by reviewing these accounting alternatives.