Empirical investigation of the information content of SFAS No. 33's procedures for calculating price-level adjusted earnings of electric utilities
This study examines the extent to which price-level adjusted (constant dollar) data contain information not included in the historical-cost data currently provided in the main body of the financial statements of electric utilities. The measure of information content was defined as the degree of association between the average yearly growth rate of earnings per share (EPS) and the average yearly market rate of return. Five different types of earnings variables (one historical-cost and four price-level adjusted) were used in computing the average yearly growth rate of EPS. The results obtained appear to support the hypothesis that price-level adjusted data contained information which is not found in historical cost data. The empirical evidence suggests that investors: (1) made one price-level adjustment similar to constant dollar depreciation expense during the first sub-period (1962 to 1972) and two price-level adjustments similar to constant dollar depreciation expense and the reduction to net recoverable cost of plant assets during the second sub-period (1973 to 1980) of the study; (2) appear to have not included purchasing power gains or losses from net monetary items (as defined by SFAS No. 33) with earnings from operations; and (3) heavily discounted allowance for funds used during construction (AFUDC) earnings during both sub-periods of the study.
- OSTI ID:
- 5050000
- Resource Relation:
- Other Information: Thesis (Ph. D.)
- Country of Publication:
- United States
- Language:
- English
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