Alternative Measures of Profit Margin: An Empirical Study of the Potential Information Content of Current Cost Accounting

Abstract

The primary purpose of this study is to investigate the link between price changes in product markets and price changes in financial markets. The nature of the association is central to evaluating the content of current cost accounting measurements, such as those promulgated in the SEC's Accounting Series Release No. 190 (ASR 190) and the FASB's Statement of Financial Accounting Standards No. 33 (SFAS 33). Although both ASR 190 and SFAS 33 state that financial statements based only on historical costs do not provide investors with sufficient information to assess the underlying economics of firms in periods of rapidly changing prices, empirical evidence suggests there was no apparent reaction to the initial replacement cost releases mandated by ASR 190 (e.g., see Beaver, Christie, and Griffin [1980]).1 This study offers one explanation for the lack of an observed market