Abstract ABSTRACT: Diverse interpretations of the security market reaction to the Exposure Draft for FASB Statement No. 19 exist. This paper provides a detailed analysis of the oil and gas accounting controversy, First, expanded theoretical models for the potential incentive effects and political effects that have been proposed as explanations for the observed security price behavior are developed. Second, the independent variables isolated by our models are used to explore the differential security market reactions of the full cost firms to the Exposure Draft. The empirical results indicate that the variables posited by our theoretical models explain a non-trivial portion of the differential security market reaction for full cost firms. These results provide evidence which is consistent with the existence of an incentive effect.
Larcker et al. (Sat,) studied this question.
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