Do Cosmetic Reporting Variations Affect Market Behavior? A Laboratory Study of the Accounting Emphasis on Unavoidable Costs

Author: Kachelmeier S.J.

Source: Review of Accounting Studies, Volume 1, Number 2, 1996 , pp. 115-140(26)

Publisher: Springer

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Abstract:

Eight laboratory market sessions are conducted in which sellers have both opportunity costs (default redemption values from not trading) and unavoidable costs (fixed outlays that must be paid irrespective of trading). The treatment variation is whether sellers' intermediate accounting reports compare sales revenues to unavoidable costs (four sessions) or default redemption values (four sessions). Findings indicate systematically higher seller asks and buyer bids in the condition where accounting emphasizes unavoidable costs. However, the price and efficiency implications of these higher asks and bids are offset by simultaneous shifts in the relative frequencies of seller-initiated and buyer-initiated trades.

Language: English

Document Type: Regular paper

Affiliations: 1: University of Texas at Austin, College and Graduate School of Business Administration, Department of Accounting, CBA 4M.202, Austin, TX 78712–1172

Publication date: 1996-01-01