Market Reactions to Accounting Policy Deliberations: The Inflation Accounting Case.

Abstract ABSTRACT: Returns on common stocks are examined in this article for possible reactions to FASB deliberations on inflation accounting, using a "price reversal" methodology that does not require ex ante specification of the direction or magnitude of the reactions, The analysis concentrates on three specific events associated with these deliberations: the report in January 1974 that compulsory inflation disclosures had been placed on the FASB agenda; the report in November 1975 that the FASB had decided not to issue a statement in 1975; and the report in January 1979 that the FASB had once again proposed that inflation disclosures be required. The results suggest that there was indeed a market reaction to these inflation accounting deliberations.