Cost of Information and Security Prices: Market Association Tests for Accounting Policy Decisions.

Abstract The article discusses how an accounting policy maker can use evidence from empirical research based on security prices to revise his prior beliefs about the relative desirability of accounting alternatives. The authors here show that, it is entirely plausible to expect different equilibrium prices to result from different accounting measurement and disclosure systems. According to the authors, to realize the full value of some alternative kinds of accounting information, an individual or group of individuals might have to produce the same information for many different firms. But the costs to such individuals may exceed the sum of the costs of having the separate firms include those alternative outputs in their total disclosure policies. The article concludes that the association between accounting numbers and extant market prices cannot be accepted out of hand as a surrogate for the expected benefit to society from the accounting policies producing those numbers. Costs of producing and impounding information by accounting sources compared to costs via competing sources must be analyzed.