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Evidence on the predictive ability of inflation†adjusted earnings measures

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  • HEIBATOLLAH SAMI
  • ANTHONY P. CURATOLA
  • JERRY E. TRAPNELL

Abstract

. The results of prior studies on the information content of inflation†adjusted data in general, and of the SFAS 33 pronouncement in particular, have been mixed. The present study is motivated by the need to address further the relevance of SFAS 33 data to decisions made by security†market participants. The relevance of the SFAS 33 data is assessed in two contexts: (1) the association of security returns with inflation†adjusted and historical cost based earnings, and (2) the SFAS 33 data's ability, in a one†period†ahead prediction of security returns in comparison with the traditional historical cost model. The association test leads to mixed and inconclusive results. The predictive ability test indicates that several inflation†adjusted measures of firms' earnings outperformed the historical cost earnings measure for 1981 and 1982. The latter results were not sensitive to the form of user loss function, sample size, and type of sample. These results may suggest that the recent decision by the FASB to make reporting according to the SFAS 33 pronouncement optional was premature. Résumé. Les résultats d'études précédentes sur le contenu informationnel des données ajustées pour tenir compte des effets de l'inflation en général, et de l'émission par le FASB de la Norme no33 en particulier, ont été mixtes. L'étude qui suit se justifie par la nécessité de se pencher davantage sur la pertinence des données selon la Norme no 33 relativement aux décisions prises par les intervenants sur le marché des valeurs mobilières. Les auteurs évaluent la pertinence des données selon la Norme no 33 dans deux contextes: 1) l'association du rendement des titres aux bénéfices ajustés pour tenir compte des effets de l'inflation et aux bénéfices exprimés à la valeur d'origine et 2) la valeur des données selon la Norme no 33 dans la prévision, un exercice à l'avance, du rendement de titres par comparaison au modèle traditionnel du coût d'origine. Le test d'association mène à des résultats mixtes et non concluants. Le test de la valeur de prédiction indique que plusieurs mesures des bénéfices ajustées pour tenir compte des effets de l'inflation sont supérieures à la mesure des bénéfices au coût d'origine pour 1981 et 1982. Ces derniers résultats n'ont pas été sensibles à la forme de la fonction de perte de l'utilisateur, à la taille de l'échantillon et au type d'échantillon. Ces résultats donnent à penser que la décision récente du FASB de rendre facultative l'application de la Norme no33 en matière de publication d'information était prématurée.

Suggested Citation

  • Heibatollah Sami & Anthony P. Curatola & Jerry E. Trapnell, 1989. "Evidence on the predictive ability of inflation†adjusted earnings measures," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 556-574, March.
  • Handle: RePEc:wly:coacre:v:5:y:1989:i:2:p:556-574
    DOI: 10.1111/j.1911-3846.1989.tb00724.x
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