Investors' Reaction to the Replacement Cost Information Provided As a Result of Asr #190: Some Empirical Results
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Louisiana State University LSU Digital Commons LSU Historical Dissertations and Theses Graduate School 1978 Investors' Reaction to the Replacement Cost Information Provided as a Result of Asr #190: Some Empirical Results. William Carlton Fleenor Louisiana State University and Agricultural & Mechanical College Follow this and additional works at: https://digitalcommons.lsu.edu/gradschool_disstheses Recommended Citation Fleenor, William Carlton, "Investors' Reaction to the Replacement Cost Information Provided as a Result of Asr #190: Some Empirical Results." (1978). LSU Historical Dissertations and Theses. 3280. https://digitalcommons.lsu.edu/gradschool_disstheses/3280 This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Historical Dissertations and Theses by an authorized administrator of LSU Digital Commons. For more information, please contact [email protected]. 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ZEEB ROAD, ANN ARBOR, Ml 48106 18 BEDFORD ROW, LONDON WC1R 4EJ, ENGLAND 7911568 FLEENOR, WILLIAM CARLTON INVESTORS* REACTION TO THE REPLACEMENT COST INFORMATION PROVIDED AS A RESULT OF ASR #190: SOME EMPIRICAL RESULTS. THE LOUISIANA STATE UNIVERSITY AND AGRICULTURAL AND MECHANICAL COL., PH.D., 1978 University M icrofilm s International 300 N. ZtEB HOAD, ANN ARBOR, Ml '18106 PLEASE NOTE: In all cases this material has been filmed in the best possible way from the available copy. Problems encountered with this document have been identified here with a check mark 1. Glossy photographs _ _ _ _ _ 2. Colored illustrations________ 3. Photographs with dark background __ _ _ _ 4. Illustrations are poor copy______ 5. Print shows through as there is text on both sides of_________ page 6. Indistinct, broken or small print on several __________pages throughout 7. Tightly bound copy with print lost in________ spine 8. Computer printout pages with indistinct print 9. 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Ml 48106 '3131 761-4700 INVESTORS' REACTION TO THE REPLACEMENT COST INFORMATION PROVIDED AS A RESULT OF ASR #190i SOME EMPIRICAL RESULTS A Dissertation Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Doctor of Philosophy in The Department of Accounting William Carlton Fleenor B.B.A., Loyola University, 1972 M.S., University of New Orleans, 1975 December, 1978 ACKNOWLEDGEMENTS The author wishes to express his appreciation to his committee members — Dr. J. David Spiceland (Committee Chairman), Dr. C. Willard Elliot, Dr. Bart P. Hartman, Dr. Charles G. Martin, and Dr. Jerry E. Trapnell — for their time and assistance throughout this study0 In addition special thanks are also owed to Mr. Bruce L. McManis for his suggestions and computer programming assistance. Finally, I wish to express my sincere appre ciation to my wife, Sandy. Without her patience, assistance, encouragement, and typing, the successful completion of this study would not have been possible. TABLE OF CONTENTS Page ACKNOWLEDGEMENTS..................... ii LIST OF TABLES ....... .......................... vi LIST OF FIGURES ............... vii ABSTRACT ..oooo.................. x Chapter 1. INTRODUCTION ....... ...................... 1 Purpose of the S t u d y .......................... 1 Nature of the Problem ............... 1 The Theoretical Framework ................... k Preview of Research Methodology ............. 7 The Orgainzational Design . ........ 10 2. RESEARCH METHODOLOGY ............................. 11 Review of Related Literature ................. 11 Introduction.................................. 11 The Evans and Archer. S t u d y ...................... 12 The Fama et al. S t u d y .......... 1^ The Archibald S t u d y .............................20 The Sharpe and Walker S t u d y ............... 2k The Harrison S t u d y ............. 27 P r o c e d u r e .......................................... 31 Sample Selection ..................... 31 Market Index Selection ........................ 32 Research Design .............................. 36 iii Chapter Page A s s u m p t i o n s ............. 40 Subsample Groupings .......................... 45 The Level of Systematic Risk Grouping . , , 46 The Unsystematic Risk Grouping . .............48 The Asset Ratio Grouping... ................. 49 The Industry Grouping ...................... 50 The Current Impact of Inflation G r o u p i n g ................. , . ...... 51 The Cumulative Impact of Inflation G r o u p i n g ..................................... 55 S u m m a r y ....................................... 5 8 3. PRESENTATION AND ANALYSIS OF FI N D I N G S ............ 59 Introduction . ............................... 59 The Primary Sample ............................... 59 Tests to Determine the Stability of the Model Parameters ........................ 64 The Asset Ratio Grouping ..................... 68 The Systematic Risk Level Grouping ............... 71 The Unsystematic Risk Level Grouping .......... 72 The Industry Grouping ........................ 76 Groupings Based on the Replacement Cost Figures ................................... 83 Introduction ................................. 83 The Current Impact of Inflation Groupings . ...........................84 The Cumulative Impact of Inflation Groupings . , ........................ 86 S u m m a r y .............................. 90 iv Chapter Page k. SUMMARY, CONCLUSIONS, LIMITATIONS, AND RECOMMENDATIONS ........................ 91 Summary and Conclusions ...................... 91 Implications of the Findings . 95 Limitations of the Study ............. 96 Recommendations for Further Research ......... 97 BIBLIOGRAPHY................... 99 APPENDICIES A„ LIST OF ALL COMPANIES IN THE PRIMARY SAMPLE .................................. 106 B. LIST OF ALL FIRMS IN THE MARKET INDEX .................................... 122 C. PLOTS OF THE CUMULATIVE AVERAGE RESIDUALS OF THE INDUSTRY SUBSAMPLES NOT INCLUDED IN THE T E X T ................................... 127 D. MONTHLY RETURNS FOR THE MARKET INDEX .................................... 1^7 VITA .................................................. 151 v LIST OF TABLES Table Page 1. Summary of the Results cf the Test to Determine the Appropriate Market Index ...................... 3^ 2. Sets of Subsample Groupings ......... ..... ^6 3. List of Industries Analyzed ...................... 52 Statistics Relating to the Primary Sample and Twelve Subsamples .... ................... 75 5. Statistics Relating to Twelve of the Industry S u b s a m p l e s ...................... 82 6. Statistics Relating to the Subsamples Based on the Replacement Cost Figures ...................... 89 1 ! ,1 vi LIST OF FIGURES Figure Page 1. The Impact of Naive Diversification on the Level of Unsystematic Risk in Portfolios ................................... 13 2. Cumulative Average Residuals- All S p l i t s ........................................19 3. Cumulative Average Residuals- All Revaluations.............................. 26 Plot of the Average Residuals for the Primary Sample .............. 60 5. Cumulative Average Residuals for the Primary Sample ..............................