The Incremental Information Content of Historical Cost and Current Cost Income Numbers: Time-Series Analyses for 1962-1980.

Abstract ABSTRACT: Previous investigations of the incremental information content of current cost Income have focused on cross-sectional analyses, which assume that the relation between stock returns and specific price-level adjustments is the same for all firms. Beaver et al. 1982 suggest that such analyses may be misspecified and provide preliminary indications that the Incremental information content of current cost Income may be more evident in a time-series context. The study summarized here provides the first formal examination of the information content of current cost income and historical cost Income within a time-series context. Some evidence of Incremental information content in current cost income is found in the time-series analysis, even though none is evident in a cross-sectional analysis. However, incremental Information content is (at best) evident only for a small subset of industries where the correlation between historical cost income and current cost income is low; for the majority of industries, the two income measures convey essentially the same information.