INCREMENTAL INFORMATION-CONTENT OF SFAS NO-33 EARNINGS DISCLOSURES - SOME NEW EVIDENCE

Previous studies which have examined how inflation-adjusted data affec t security prices have addressed the issue of feedback value on a time -coincident basis. As indicated in the SFAC No. 2 (FASB 1980, para. 47 ), the information is relevant if it has predictive and/or feedback va lue and if it is provided on a timely basis. However, none of the stud ies to date have used an experimental method which tests how much the predictive ability of historical cost numbers improves by considering the inflation-adjusted numbers as well as the historical cost numbers. Consequently, our study assesses the predictive value of SFAS No. 33 (FASB 1979) earnings measures by their ability to reduce the forecast error of security abnormal returns when they are added to the traditio nal historical cost model. The results indicate that some inflation-ad justed measures of earnings significantly reduce the forecast error of security returns over two test periods.