Ball and Brown (1968): A Retrospective

Author(s): Ray Ball and Philip R. Brown

Source: The Accounting Review , JANUARY 2014, Vol. 89, No. 1 (JANUARY 2014), pp. 1-
26
Published by: American Accounting Association

Stable URL: https://www.jstor.org/stable/24468510

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms

American Accounting Association is collaborating with JSTOR to digitize, preserve and extend
access to The Accounting Review

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 THE ACCOUNTING REVIEW American Accounting Association
Vol. 89, No. 1 DOI: 10.2308/accr-50604
2014
pp. 1-26

Ball and Brown (1968): A Retrospective

Ray Ball
The University of Chicago

Philip R. Brown
The University of New South Wales and The University of Western Australia

ABSTRACT : This essay provides a retrospective view on our co-authored paper, Ball and
Brown (1968). The retrospective was commissioned by Gregory B. Waymire, then President
of the American Accounting Association. It describes how we both came to be Ph.D. students
at The University of Chicago and set about researching the relation between earnings and
share prices. It outlines the background against which we conducted the research, including
the largely a priori accounting research literature at the time and the electric atmosphere and
radical new ideas then in full bloom at Chicago. We describe some of the principal research
choices we made, and their strengths and weaknesses. We also describe the reception our
research received and how the related literature subsequently unfolded.

Keywords: Ball-Brown; earnings; usefulness; timeliness; anomalies; event study.

L INTRODUCTION

of Accounting Income Numbers," was among the most influential research papers published
Undoubtedly the Ball and Brown (1968; hereafter, BB68) paper, "An Empirical Evaluation
in accounting during the last century. As the authors of that paper, we were commissioned by
Gregory B. Waymire, then President of the American Accounting Association, to look back on our
contribution, given the benefit of hindsight and the evolution of the research literature over the past 45
years.1 To fulfil this commission, we will address a series of questions. We are both Australians, so how

This essay was commissioned by Gregory B. Waymire, American Accounting Association 2012 President, and is based
on our joint Presidential Scholar Address, entitled "Ball and Brown (1968): A Seed that Made a Difference," at the 2012
AAA Annual Meeting in Washington, DC. We express our appreciation to Greg for this opportunity to tell our story. We
also appreciate the comments made on earlier drafts by Sudipta Basu, Peter Easton, John Harry Evans III, Paul Griffin,
Richard Leftwich, Christian Leuz, Stephen Penman, Lakshmanan Shivakumar, Doug Skinner, James Wahlen, Greg
Waymire, and Stephen Zeff. We thank The University of Chicago Booth School of Business for permission to reproduce
Figure 1 from the Journal of Accounting Research.

This commentary, based on a lecture at the 2012 American Accounting Association Annual Meeting in Washington,
D.C., was invited by Senior Editor John Harry Evans III, consistent with the AAA Executive Committee's goal to
promote broad dissemination of the AAA Presidential Scholar Lecture.
Editor's note: Invited.

Submitted: July 2013

Accepted: August 2013
Published Online: August 2013

cf. Brown (1989).

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 2 Ball and Brown

did we both come

BB68? What did w
accounting resear
researchers? Looki
Has BB68 been pr
Our reflections ar
Regardless of the
the literature that followed are our own.

II. HOW WE CAME TO BE PH.D. STUDENTS AT THE UNIVERSITY OF CHICAGO

Our backgrounds have a great deal in common. We both grew up in Sydney, Aust
post-WWH period. Our major educational influences, in terms of both subject m
personalities, are remarkably similar. So we came to be Ph.D. students at The Universit
by similar routes.
Phil Brown began his university studies as a part-time accountancy student at wh
The University of New South Wales (UNSW) in Sydney, in the late 1950s. At the end
year he enrolled in the University's accountancy honours program, which was condu
late William J. McK. (Bill) Stewart. Bill Stewart was a remarkable academic for th
having established links with the University of California, Berkeley, The University
and Cornell University. Honours students completed four-year degrees (normal "pass
involved only three years of full-time study), and for the first three years they atten
classes as the pass degree students. Honours students also participated in small weekly
often held in Bill Stewart's office, where the current literature, including book
regarded as the accounting classics,2 was discussed in great detail. In the fourth year
students undertook further advanced studies and wrote a reasonably substantial
theses dealt with some accounting research question of interest to academics at the t
During the course of his honours degree, Phil decided to pursue a career as an acc
academic. That was understood to require a Ph.D., and at the lime it was not realistic
to complete a high-quality Ph.D. in accounting at an Australian university. Neit
feasible, it seems, for a young Australian to complete a Ph.D. in accounting at
hallowed British universities, which often welcomed bright foreign students fro
wealth countries who wished to study other disciplines. Since Bill Stewart had
Chicago and Cornell, he recommended Phil apply there. Serendipitously, he chos
Phil enrolled in Chicago's Ph.D. program in September 1963. Based on the strength
UNSW accounting honours program, he was exempted from all accounting courses othe
Ph.D. seminar and was now free to pursue courses in economics and finance. A corpo
course taught by Mert Miller exposed Phil to the Miller-Modigliani view of the role
dividends, and growth opportunities in the valuation of the firm. Phil was appointed an
Chicago in 1966, which was the position he held when Ray joined the Chicago Ph.D. p
September.4
Ray also completed an accountancy degree at UNSW, where he too was invited to join the
honours program by Bill Stewart. He became immersed in accounting theory, and found that, in

2 See Ball and Brown (1968, footnote 1) for a list of some of the readings.
3 Phil's honours thesis was titled "Depreciation" while Ray's was "On Objectivity in Accounting."
4 Ross Watts, who came from a similar background (including an honours program strongly influenced by Bill
Stewart), entered the Chicago Ph.D. program the same year as Ray. Another Australian, Bob Officer, joined the
program in 1968.

\Γ5Association
Accounting The Accounting Review
β
^ January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 3

addition to doing well at it, he thoroughly enjo

articles on accounting theory in a student journal
for a Ph.D. in the U.S. was likewise influenced b
We both owe much to Bill Stewart, as do others
personality, and his deep knowledge of accou
literatures. Bill had a gift for stimulating his b
accounting and accounting theory, the two of us
not be known except by anyone who searches out
and 1960s, but his legacy is his effect on a gener
Some sense of the times can be gleaned from
for Ray to decide where to study, Bill had beco
recently had acquired at Chicago, and of its the
market efficiency in particular. Neither was he
Phil's interests in economics and finance wer
program, where accounting was not being ov
accounting theory remained in vogue, but ina
dynamic and exciting. That impression was stre
in Chicago. So Ray accepted Chicago's offer.
On arriving, Ray also was exempted from
seminar which, he discovered, covered the same
years 2 through 4 of the UNSW program, b
Consequently, the seminar required little work,
finance—and for research.

Not long after Ray's arrival in Fall 1966, we decided to team up, and the collaboration began.
Together we have published nine peer-reviewed articles, four other articles, and an edited book of
readings. Of course, in hindsight BB68 was our most successful project.

HI. BACKGROUND TO THE RESEARCH

In this section, we describe the background against which BB68 emerged, in

accounting literature at the time, the exciting new ideas being fomented at Chicago, an
this entailed between two world views.

The Accounting Literature at the Time

From today's perspective it is difficult to comprehend the background against which Ball and
Brown (1968) emerged. Almost five decades have passed since we began the research in 1966.
During that interval, the accounting literature has changed dramatically, and the ideas taught in
doctoral programs have been so radically transformed, that the literature when we started must now
seem like another world entirely.
To understand the paper and its impact, it helps to realize that the dominant accounting
literature in the mid-1960s was predominantly a priori in nature. Research topics ranged from more
esoteric topics, such as the nature of accounting theory and the difference between postulates and
principles in accounting, to the mundane, such as whether deferred taxes are a liability. Influential
"theory" texts included Canning (1929), Edwards and Bell (1961), and Chambers (1966), whose
verbal style bore little resemblance to the modem "theory" literature.
The literature we inherited had reached two central conclusions:

1. Financial statement information prepared under existing reporting rules is meaningless; and
2. Radical changes in the nature of financial statement information are required.

The Accounting
°
Review ^5 AcccumTn?
Association
January 2014 ~

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
4 Ball and Brown

These conclusions
Lecture by Ray C
(Chambers 1976;

It is futile to exp
are represented
payables), by his
depreciated histo
such other odd a
inventories). Agg
nothing in the n
"dated market va
amounts aggrega

... only a system

intelligible figur
another; and tha
money equivalen
andthe income a
general capacity
suchfinancial ar

Variations of the
agreement on the
meaningless becau
proverbial apples
second conclusion
There were advoc
prices), realizable
general price cha
specific prices ch
status quo.
Dyckman and Ze
normative policy
between 37 and 7
year. Some appre
literature of the
Wheeler's objecti

5 The first footnot

Canning (1929, 99)
the sense that it con
"Net Income Has N
income can be maint
expresses the mag
numerical value ha
[revenue], the met
[expenses] the meas
the original). The
meaning recently r
aggregate of individ
The aggregate of f

ο Accounting The Accounting Review

V A— january 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 Ball and Brown (1968): A Retrospective 5

and research in perspective." At the time, Wheeler

Associate Dean for Academic Affairs of the G
University of California, Berkeley. The essay was
Review. Furthermore, the conclusions reached w
(Wheeler 1970, 2):

I wrote to a number of accountants who have

development of accounting theory to get fr
developments ... Their ideas, those of graduate
the subject and the writings of countless accoun
utilized.

After considering all these sources, Wheeler reach

1970, 8):

I should like to conclude by looking at accounting theory and research needs for the future.
General expositions of theory differentiate between descriptive and normative theory, but
it is my view that only the latter is relevant for accounting.

No reference was made to collecting comprehensive empirical data on the actual properties of
financial statements prepared under conventional rules, or data on how those properties might be
changed under different alternative schemes. Collecting evidence was not an important enough
priority for Wheeler or for any of the authorities he approached to even deserve a mention. In this
regard, Wheeler's views on what was important in accounting research mirrored the literature,
which was based almost entirely on a priori reasoning.

General Absence of Systematic, Comprehensive Evidence for Extant Theory

We were aware of no systematic, comprehensive evidence offered in the prior literature to

support the two central conclusions outlined above. Of the leading theorists, Chambers alone
provided empirical support for his views, but even those observations were largely pathological
cases in which financial statements had been shown ex post to be imperfect predictors of
subsequently revealed valuations in unusual circumstances, such as bankruptcies, accounting
scandals, takeovers or subsequent asset revaluations. His position, stated partly in response to our
paper, was (Chambers 1973, 165):

It did not seem to me, and it still does not seem to me, to be necessary to apply any
elaborate statistical processes to the analysis of these cases. Every company is unique; its
history, its financial and trading strength, its vulnerability to bidders, its relations with
affiliates and financiers and its work force, are unique.

Much can be learned from pathological cases, but one has to be careful not to over-generalize.
An immediate problem is selection bias. If one's hypothesis is that conventionally prepared
financial statements provide imperfect measures of value, then selecting pathological cases that are
consistent with that hypothesis is equivalent to truncating the sample on the basis of the dependent
variable, which generates biased inferences about the population. But the literature of that era
proposed radical changes in reporting for the population in its entirety. To make the point a different
way, it would be equally invalid to conclude, from an analysis of cases selected on the basis that
their financial statements had been excellent predictors of ex post valuations, that no changes to
reporting should be made.
A second problem with this approach is that it provided no evidence that the proposed radical
changes in reporting would improve social welfare. There was no systematic evidence on the major

The Accounting Review Ό

American
r. ^ Accounting
Association

January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
6 Ball and Brown

uses to which fin

those uses. There
of bankruptcies,
be imperfect. In
engenders more
manipulation, as
In this regard, t
fallacy" that Dem
accounting) in ge

The view that n

choice as betwee
This nirvana app
which the relev
practice, those w
the ideal and the
(Demsetz 1969, 1

Inother words, d
that they are ine
A related proble
pathological case
were subsequentl
optimal (Anderso
A final limitatio
other informatio
alongside accoun
efficient aggregat
source, financial

Absence of Sys

Strange as it ma
fruitful to invest
likely reason is d
accounting rese
accounting measu
In sum, for som
change, utilizin
propositions.

Important Cont

We do not wish
without merit. In
age in the history
among them bein
One may question
major body of th
crucial stage in t

ΪΊ A^intTng The Accounting Review

Association

January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 7

Echoes of the great debates of the "golden age"

debates on the role of "fair value" accounting. F
"continuously contemporary accounting (Co
testimony to an enduring influence of that litera
Furthermore, the prior literature provided us w
statement information prepared under existing r
aggregating amounts that are not homogeneous.
with a prediction at the core of the prior literatu

New Ideas and Methods in Economics and Fi

The atmosphere at Chicago was electric when w

crackled with innovation. The general attitude to
workshops—a Chicago staple—were frequent
seminar, largely uninterrupted but with some tim
rude awakening within minutes of starting.
New ideas about markets were being devel
economics and finance.7 In economics, a constant
their evolved institutional structures. This line o
Friedman, Stigler, Coase (all of whom became N
became mainstream economics, but was exciting
another Nobel Laureate, had co-pioneered the int
form of the Miller-Modigliani dividend and debt
Of particular importance was the work bein
prices. Fama (1965a, 1965b) made the concept
function of information flows. Taken for grant
thinking. A corresponding development was the
(1969) of what is now known as "event time."8 T
stock prices as a function of information flows
breakthrough. It is difficult to over-estimate th
design to our study and to the understanding o
information and prices resides in calendar time
financial press observes share prices changing in
events, such as news about international and do
statistics, takeovers, management changes, prod
manager and analyst forecasts, and earnings
(1969) inverted the lay perspective: for a given
they observed prices changing at a large cros
subsequently became known, generically, as a
A final but important ingredient of the back
confronting ideas with data. To that end, the C
established at Chicago in 1961, and completed th

Kuhn (1969, 65; emphasis in the original) states that

knowing with precision what he should expect, is able
Accounting students of the period included Bill Beav
Baruch Lev, Bill Voss, and Ross Watts. Finance studen
Roll, and Myron Scholes.
While published in the year after BB68, Fama et al
references and at various points in the paper (footnot

The Accounting Review Ό i

_ _ _ Association
I American
' Accounting

January 2014 ^

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 8 Ball and Brown

Starting with F
floodgatesto a to
widely recognize
The emphasis pl
Sidney Davidson
and George Sorte
stressed impo the
Accounting was o
proceedings were
Preface to the fi
effectively by in
evidence as well a
Nevertheless, ou
only natural. We
and teaching, and
research. One acc
(earnings) with g
the finance facult
time were like-m

A Clash of World Views

We were brash young risk-takers who were well schooled in two fundamentally different wa
of thinking, and itching to put them to the test in an environment that encouraged just that.
We had been well educated at UNSW in all the schools of thought that concluded financial
statement information was in need of radical change, and knew that literature well. But whe
exposed to the thinking in economics and finance at Chicago, it had become natural to question
conclusions drawn in the existing literature, to see flaws in its reasoning, and to look fo
empirical test.
At Chicago we had learned a fundamental respect for markets and their evolved institutional
structures. It was, to us, only natural to ask if financial statement information is so meaningless,
why have substantial resources been put into producing it for so many years? Why has financial
reporting under traditional accounting rules evolved and survived for so long as an integral part of
the institutional structure when it allegedly is so deficient? Are the basic conclusions reached in the
literature correct?

The prevailing reasoning began to seem flawed as well. Is a number reported in a financial
statement necessarily meaningless just because it is an aggregation of numbers calculated using
methods that are not completely homogeneous? Commonly used test scores such as IQ, SAT,
and GMAT scores are aggregations of answers to heterogeneous questions, verbal and
quantitative, short and long, involving different tasks such as identifying sequences, analogies
and shapes, in addition to which the aggregate scoring is a function of the number of questions
attempted as well as the number correctly answered. Nevertheless, we use these scores as
imperfect indicators, and employ them in conjunction with other information, but we do not
reject them as totally meaningless. Similarly, we grade our students in an exam by aggregating
scores on heterogeneous questions, we assign grades in our subjects by aggregating these exam
scores along with scores on essays, projects, class participation and the like, and we aggregate
grades across heterogeneous subjects such as Accounting, Strategic Management, Statistics and
Marketing to obtain program-wide GPAs, three actions that indicate we do not view such
aggregations as devoid of meaning. We tend to regard them as imperfect indicators, to be used in

Ο ArcwntTng The Accounting Review

Association

January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 9

conjunction with other information. Why is finan

totally meaningless because it aggregates calculatio
So we set about to challenge the basic proposition
But what test of those propositions could we devise
in retrospect, but it required several research design
are described below. In making those choices we
precedent was Fama et al. (1969), but even that
answers we needed. We cannot recall receiving any
students, with the sole exception of Myron Schole
Nobel Laureate, who is the only academic mention

IV. OUR RESULTS AND WHAT WE CONCLUDED

The basic research question

Our fundamental research question was simply, "Are accounting income numbers u
Two derivative questions are, "Useful to whom?" and "Useful for what purpose?" Our p
summarized as, "An empirical evaluation of accounting income numbers requires agreem
what real-world outcome constitutes an appropriate test of usefulness. Because net inco
number of particular interest to investors, the outcome we use as a predictive criterio
investment decision as it is reflected in security prices" (BB68, 160). We considered
relevance and the timeliness of income announcements to equity markets, because, as w
"... usefulness could be impaired by deficiencies in either." The "useful to whom" and "
purpose" questions are fundamental to this line of enquiry and warrant rather more tho
sometimes they are given. We return to this point later, when we discuss the fact that
also depends on the user's perspective.

How Did We Address the Research Question (What Did We Do?)

We begin our answer to this question by noting that the Efficient Market Hypothesi
a core component of the BB68 research design. And why not? At Chicago, in those day
was an almost unchallenged view, particularly among the finance faculty and doctoral st
BB68 is what is now seen as an archetypal event study.10 While BB68 may well have b
first "modem" event study to be published, the first such study to be conducted was b
Fisher, Jensen, and Roll. Their paper, published in 1969, is about the way in which infor
captured in financial markets, and their "event" is a stock split. The event we ch
announcement of the annual accounting income number, or earnings for the year.
Because nobody had focused on earnings announcements in any detailed way be
analysts' earnings forecasts were not being systematically collated in any form accessi

9 The above argument, and our empirical tests of it, are related to the classic Ogden and Richards (1923
that words are connected with things "through their occurrence together ... in a context" and their o
(Ogden and Richards 1923, 270) that for a word to have meaning "requires that it form a context wit
experiences." Thus, the meaning to users of accounting numbers including earnings arises through th
contexts such as the stock market and is not a simple matter of their correspondence with an analytica
10 When we first presented the forerunner paper and talked about the possibility of undertaking BB68
participants strongly argued that we should investigate the BB68 question by including the BB6
forecast errors" in an expanded version of the Market Model of stock returns. We resisted that argum
reasons. The first is that we were chary about making the linearity assumption in a returns-earnings
Second, and more importantly, this approach did not sit well with the timeliness notion we
investigate.

The Accounting Review îSSÏmîie

January 2014 ^

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 10 Ball and Brown

we had to work ou
We employed three
we called them. T
changes in prior ye
(2) a similar Mark
well described by a
the firm's earnings
firmwas stagnant
Market Model spec
stock returns, bu
Market Models. W
earnings changes
check, which is wh
in the estimation p
the earnings foreca
before the annual e
As an aside, we h
information perspe
want to take an info
affect stock prices
perspective and a va
distinction in this
(returns).

What We Found

We reported two principal results, summarized as follows:

The initial objective was to assess the usefulness of existing accounting income numbers
by examining their information content and timeliness ... Its content is ... considerable.
However, the annual income report does not rate highly as a timely medium. (BB68, 176)

In addition, we reported the anomalous result that "the relationship between the sign of the inc
forecast error and that of the stock return residual might have persisted for as long as two mo
beyond the month of the announcement" (BB68, 173). This section discusses each of these res
As the saying goes, "A picture is worth a thousand words."12 Figure 1 in BB68 is reprodu
below. The top half of Figure 1 depicts a company's stock price movements over the 12 mont
leading up to the announcement of the company's earnings (income) number for the y
conditional upon "good news" earnings being reported; the bottom half is for "bad news." Th
lines plot the averages of the market-adjusted stock price movements, which are expressed in t
form of an "Abnormal Performance Index," or API.
What were the answers to our initial research question? We can re-state the initial "usefulne
question in the form of one that is testable: "Is the newsworthy component of the annual earn

'1 In the forerunner paper we fitted the relation between the levels of annual earnings of the firm, its industry
the economy. We adopted a "changes" specification "because our method of analyzing the stock mark
reaction to income numbers presupposes the income forecast errors to be unpredictable at a minimum o
months prior to the announcement dates. This supposition is inappropriate when the errors are autocorrelate
(BB68, 166), as they are when the association is fitted in levels. At the time, a first differences specification w
standard econometric procedure for dealing with autocorrelation in the levels.
12 The saying's origin is obscure: http://www.phrases.org.uk/meanings/a-picture-is-worth-a-thousand-words.h

ΤΊ) «ccôurÂÎnq The Accounting Review

Association

January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 11

FIGURE 1
Abnormal Performance Indexes for Various Portfolios
3—i | | 1—i r- i—i I I i I I I ' I l" tl

1.12

1.10

Varioble 2
1X16
- ~ -it—
X'\ Yorioble 1
V

106

1.04 / , Vgriob!* ?
-8
-S 102

2
J NX Tq*ol«qmpl»7
0.98 V

\
:fo.*6
\
0.94 \
V
X
a92
•>

0.90
^ Vorjafeiel
Varioble 3

yorjpbV 1 F
0.88

i i > « > i Li i i i i i

-12
-12 -10
-10 -8
-8-6-4
-6 -4 -2
-2 0
0 2
2 4
4 6
6
Month
Month Relative
Relativeto
toAnnual
AnnualR

Source: Ball and Brown (1968).

number associated with stock p

perspective: because accounting ha
to produce, accounting as an econo
there was a demand for it. Our pri

American

The Accounting Review Accounting

Association

January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 12 Ball and Brown

had not rejected t

wrong with our e
announcements we
We adopted an e
months to the end
of information
Information," or
Information (AI) b
explained using th
Assume the Effic
monthly informat
month-by-month
the annual income
way, the total ma
of the year leadin
start of each mon
went long or shor
Market Hypothesi
assume you are an
established your i
income number w
return the y over
was on average 0.1
today, every bit o
which under the
before the end of
is that, although
are interested in
on every stock, go
investment until 12 months later.

But what if we told you only the amount each stock would report as its annual earnings per
share in 12 months from now, and nothing else? Then you might wonder, "Hmm, I know what
earnings per share will be in 12 months' time, so what should I do today?" Recall we had three
models of the earnings "surprise" to simulate your decision and one of the three assumed
earnings followed a random walk. According to that model you would decide, "If earnings will
be higher this year (relative to last year), then I will go long, otherwise I will go short." If you
did so then over the course of the year, your market-adjusted return, labeled AI, would have been
about 0.08 averaged once again over all company-years in the BB68 sample. Can you see how
we brought these three numbers together? About three-quarters of the information released each
month over the course of the year is offsetting (TI is 0.731 but NI is 0.165, which is only a
quarter of the value of TI); and earnings per share captures about half the net (market-adjusted)
pricing effects of all information revealed over that same period (AI is 0.08, which is of the order
of half the value of NI).
But is the annual earnings number, as economically significant as it appears to be, also timely
as far as stock prices are concerned? Hardly. Around 85-90 percent of the price adjustment occurs

13 The calculation was more complicated than this paragraph indicates, but that is more a matter of detail at this
point.

ο Accounting The Accounting Review

V ™ january 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 13

FIGURE 2
Ball and Brown API for EPS Good/Bad News
Rescaled

before the announcement month, which can be seen clearly in Figure 1. Possible sources of
"leakage" of earnings-related information are earlier announcements of dividends, earning
interim periods, contracts won, production figures, and so forth.

More on Timeliness

The second main result addressed the timeliness of accounting earnings. We concluded

However, most of the information contained in reported income is anticipated by th

market before the annual report is released. In fact, anticipation is so accurate that t
actual income number does not appear to cause any unusual jumps ... in the
announcement month (BB68, 170).

The timeliness notion has not been appreciated as well as it might be. We now discuss it further
because it is a remarkably simple yet extraordinarily general concept, and it may yield many more
insights in the future.
Figure 2 is a rescaled version of the BB68 Figure 1. The solid line is the market-adjusted
average price movement for good news, and the dashed line is for bad. Why was bad news in the
BB68 sample on average more timely? Was there a litigation story back then? We do not imagine so.

14 In this quote, when "the annual report is released" refers to the first earnings announcement in the press.

The Accounting Review Α^ο'ύηΙΓπι

January 2014 V Associi,,i°;

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 14 Ball and Brown

FIGURE 3
Ball and Brown versus Nichols & Wahlen, API for EPS Good News
Rescaled

1.00

0.90

0.80

0.70

0.60
• N&W Rescaled
£ 0.50
α.
<
»
• BB
BB Re-scaled
Re-scaled
0.40

0.30

0.20

0.10

0.00
-12 -11 -10 -9
-9 -8
-8 -7
-7 -6
-6 -5
-5 -4
-4 -3
-3 -2
-2 -1

Month Relative to Announcement Month

Nichols and Wahlen (2004) published a partial replication of BB68 using more up-to-da
Figure 3 compares the rescaled lines for good news in their paper (the solid line) and in B
dashed line). Do we not expect the solid line to be to the left of the dashed line? Has the
community not vastly improved its research methods since the 1950s and 60s? Have there n
more frequent and more substantive disclosures, and would we not expect price-s
information to be coming out faster? Their findings are reassuring.
Figure 4 is an intriguing graph. It is similar to Figure 2 and is based on the results of N
and Wahlen (2004). Figure 4 indicates good news is discovered by the stock market earlier t
news in the first half of the year, but later in the second half. Assuming this pattern is charac
and not just noise, then we are faced with a question, which we will leave with you. Why
lines cross around the middle of the year? Is there a litigation risk story here?
This was the first use of the research technique of measuring important properties of ac
information by benchmarking accounting income against stock returns (a proxy for econ
income). In a well-functioning capital market, changes in stock prices incorporate a wide
information, accounting income included. We were able to show that, from the shar
perspective, annual earnings announcements are not a timely source of information.
Timeliness does depend on the user's perspective, however. Many contracts with outco
that are a function of financial statement numbers are settled only annually, or perhaps qu
These include debt, compensation, supply, franchise, licensing, and royalty agreements. W
also able to show that annual earnings captures approximately one-half of the total amou

American
MfTieriCdn rj-< I . . η
Accounting
Association
1 he Accounting Review
January

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 15

FIGURE 4

Nichols and Wahlen (Ball and Brown Replication) API for EPS Good/Bad
Rescaled

1.00

0.90
^ ·
^ • y
*
0.80
*
0.70

0.60
»Good
Good
ξ5 0.50
<t
<
— ««Bad
«»Bad
0.40

0.30

0.20

0.10

0.00
-12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1

Month Relative to Announcement Month

information available to the share market on an annual basis, an alternative benchmarking t

explain the use of financial statement numbers in those contexts.
Basu (1997) defined timeliness in annual terms in order to investigate a related proper
accounting information, asymmetric timeliness. Basu regressed annual earnings on annual r
and specified the relation as piecewise linear. This permitted a measurement of the e
conditional conservatism, which has come to be appreciated as another important propert
accounting information. Ball, Kothari, and Robin (2000) subsequently adapted the Basu me
investigate properties of accounting information in different countries, as a function of attr
their economic systems.
The general point that arises from this discussion is that timeliness—or its absence—w
central concept in BB68 and, we believe, it remains a central and perhaps under-appr
property of financial reporting today.

Challenging Received Views

One of the two central conclusions reached in the literature of the day, the conclusio
various kinds of radical change in financial reporting are required cannot be tested directly
we cannot observe the counter-factual. In that sense, all standard-setting in accounting is t
degree an act of faith, and that applies to the copious advice that the accounting literatu
giving to standard-setters at the time.
However, we did feel we could test the parallel proposition, that financial stat
information prepared under existing reporting rules is meaningless. And it failed the test.
prepared to assume that changes in share prices incorporate real changes in underlying firm

The Accounting Review Amounting

January 2014 V Assoc,a,lon

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 16 Ball and Brown

least to some degree

maintain that acc
prevailing theories
to reject an import
At one level, the r
dire as claimed. At
could not explain,
inconsistent with—
were premised. App
many of the next
discuss further bel
Another conclusio
earnings-announcem
subsequently was r
known as "post-ear
174) was tentative
explanation fits all
literatures of "anom

V. HOW THE PAPER WAS PUBLISHED AND ULTIMATELY RECEIVED

We presented a forerunner paper to BB68 at the JAR empirical conference in M

which we investigated the relation between the earnings of the firm, its industry, and
While working on the forerunner paper we saw the potential for a second paper, and
conference. The second paper was BB68.
We presented the first version of BB68 as work-in-progress at a Chicago accountin
workshop on June 1, 1967. The title was grandiose: "A Theoretical and Empirical Eva
Accounting Income Numbers." When we fleshed out the first version, we changed the
Information Value of the Annual Earnings Report," which was more modest and mo
This version was presented at the Center for Research in Security Prices (CRSP) confe
University of Chicago in November 1967, and by then BB68 was almost complete. Be
second version is the first full draft of BB68, for historical interest we have posted i
The third and published version expanded on version two and has the title, "An
Evaluation of Accounting Income Numbers." In response to comments on earlier
re-wrote the introduction to explain BB68's place relative to the classics, and we re-

An analogy that might help explain the relation between the two propositions is given by motor in
was as if academics were saying "[W]e have not collected data on whether or how consumers us
currently are designed, but we know a priori that these cars are useless and all cars hencefor
redesigned as 16-wheel trucks." Suppose the data reveal consumers actually find cars to be useful,
are. That result does not necessarily imply social welfare would not be improved if cars w
redesigned as 16-wheelers, but it does cast some doubt on the reasoning behind the conclusion
would be improved.
The first reference to an "efficient" market for securities was three years earlier, in Fama (19
efficient market, competition among the many intelligent participants leads to a situation where, a
time, actual prices of individual securities already reflect the effects of information based both o
have already occurred and on events which, as of now, the market expects to take place in the
Fama (1965a, 90) as " a market where, given the available information, actual prices at every
represent very good estimates of intrinsic values." Ball (1978) appears to have first used the term
describe evidence that was inconsistent with market efficiency.
Ball, Ray and Brown, Philip R., The Information Value of the Annual Earnings Report (Oct
Available at SSRN: http://ssrn.com/abstract=2128616 or http://dx.doi.org/10.2139/ssrn.2128616

Ό Accounting The Accounting Review

Association
January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 Ball and Brown (1968): A Retrospective 17

conclusion. There is more discussion of econometric

and 2 were combined into a new Figure l.18 We a
forecast errors of the three models (explained above),
As now is well known, our paper, Ball and Brown
The Accounting Review (TAR). In hindsight we have
Charles H. Griffin. It must have been almost impos
would have been competent to handle the submissio
research. We have only a loose recollection of the edi
have not survived several moves by both of us, b
discussion of the extant theory literature and its shor
little to do with accounting.

Publication in Journal of Accounting Research

The Journal of Accounting Research had been e

initial assistance from the London School of Economi
accounting. In 1968, Nicholas Dopuch was appointed a
with Sidney Davidson.
When we received the rejection letter from TAR w
of age, Ray 24, we were both relatively inexperienc
apparently was not good enough for TAR. Nick Dop
after Phil (the corresponding author) had opened the
like, "Hey, what's wrong?" Phil's reply was typical of
letters. Nick, who knew the paper well and had pre
responded, "I'll publish it," and in a nutshell that's
Nick had been quick to see the paper's potential an
not for his foresight, the paper might have languish
evolved in a completely different direction.

Reaction to BB68's Publication

The immediate reaction of influential senior faculty around the world ranged from indifferen
to open hostility. In a review entitled "Stock Market Prices and Accounting Research," Chambe
(1974, 53-54) responded in his typically aggressive and fulsome fashion, including the followin

The connection between information and prices is too loose to warrant any firm inference
about the effects of one class of information.

The stock market and operations in it are extraordinarily complex. So complex in fact that
it provides opportunity alike for serious scholars to debate its processes, for intermediaries
to earn handsome incomes (and some to fail) in it, and for peddlers of tips and advice to
gather a wide following in it. Experts who have worked in it for years admit that they
understand little of what causes shifts in security prices. But it is almost beyond question,
if one is a market-watcher, that non-accounting information and judgments and events
have a more severe, a more frequent and a more readily identifiable impact on prices than
does accounting information. If anything, accounting may be regarded as the substratum,

18 Phil Brown had drawn the old Figures 1 and 2 and they were on his desk when an M.B.A. student came into his
office and somewhat pointedly asked, "What are they?" The student had worked as a professional draftsman
before enrolling in an M.B.A. and he offered to re-draw BB68, Figure 1. Had we not accepted his offer, we doubt
Figure 1 would be as recognizable as it is today.

The Accounting Review ΝΓ5 A,,,*,'c,!,

V-, Accounting
Association

January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 18 Ball and Brown

FIGURE 5
Citation Count BB68, 1968-2012
52 II
52 ρ
50ί i'
50

48 ||l
48
46 1!

44
44-i

42

40 -
40 ·;
381
381
36 i
361
34 j
32-!
32 j
30

28
28iI

261|
261
24
24 \\\
\

22 j;Ijj
22
20
201J

IDlONNNNNNKKNNtOBffllOtOMfflfflaiBffimmOlfflOlCnOlOimOO
Ιί>ΐΛΚΓ^ΚΚΚίν.ΚΚΝ.ΓχίΟΟΟ«0«ΟίΟΰΟ(»α3ΰΐΟΟ<Τι(7ισ><ησισι(ησιί7ισΐΟΟΟΟΟΟΟΟΟΟ»Η^Η^
cn<ntno>Ao^cnAo^o^in(ncncn<no^o^(no>(Tto>(7to^(7to^(n<no>(noNo\o^oo
cntntn(i>o\^cn(n<n(n0^(ncncn(no^o^o^o>o^o^(n<n<7to^(no\o>no^<n(nooooooooooooo
MrfWHHHHHrtHHHHHHHHHHHHriHHHrtHHHHHrifMIMNMNIMNNMNNIMM

Source: Web of Science, visited Fe

overlaid by so many other fac

surface has little identifiable
itself extraordinarily uneven,
be attributed to the quality of

A rare supportive "old schoo

Queensland, who tried to recr
Western Australia) and Ray (w
Reg had some second thoughts
Between 1968 and approximate
small. Figure V depicts the 682
Reuters' Web of Science (at the
cites or citations by other schol
influence of the paper began to

19 The first, in 1968, was by Bill Be

Gene Fama in his seminal review art
Virgil. Four of the next nine citati

T| Accounting The Accounting Review

Association

January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 19

the paper received the American Accounting As

Contribution to the Accounting Literature, which is a
a work that has been published for at least 15 years
cited as often or has played so important a role in th
the past thirty years."
Nevertheless, the accounting area is rich in altern
can't please everyone." Richard Mattessich is a high
prolific surveyor of the accounting literature and it
the last two centuries of accounting research, the rec
an eight-line mention at the end of a subsection en
Accounting." It is included among many papers surv
subsection entitled, "Other Trends of the 1960s" (M
to either of our two basic results, or their implicatio
paper, as distinct from the reception it received, is a
our earnings surprise variable had "the status of
content" (Mattessich 2008, 203).

VI. WHAT WE SEEMED TO GET RIGHT

The success of BB68 was due in part to interest in the topic and the novel resu
but it also was due to some things we apparently got right in the research design and
of the paper, at least by the standards of the day. Specifically:

• The paper in some ways set a standard for "good" empirical research. It used
science, formulated a testable hypothesis, was careful in handling its data,
of being replicated.
• We focused on earnings, noting that "net income is a number of particu
investors" (BB68, 160). Earnings has the additional advantage of being a
variable for changes to balance sheet variables, many of which pass through
statement. In particular, earnings timeliness is correlated with timeliness in r
sheet numbers in general.
• How to specify the earnings variable was not clear. The only event study pr
Fama et al. (1969), whose event, a stock split, did not seem comparable
discretionary. The mere fact that a firm announces its earnings is not in itself
earnings reports are mandatory. We settled on measuring the "unexpected co
"forecast error" in earnings announcements (BB68, 162), using a simple rando
and a model that controlled for market effects. We also used the labels "news" and "new
information" to describe this concept. Subsequent literature and Wall Street practice uses the
term "earnings surprise."
• To measure the expected content of annual earnings, we adopted three alternative
specifications: market models for changes in Net Income and EPS, and a "naïve" random
walk expectations model for EPS. All assume that first differences provide the appropriate
specification for earnings news. We knew this was a strong assumption, which prompted
Ball and Watts (1972), in response to Phil's suggestion, to confirm that a random walk
specification was not as "naïve" as one might have expected, particularly for expectations
formed a year in advance. Subsequently, Bradshaw, Drake, J. Myers, and L. Myers (2012)
confirmed that random walk EPS forecasts are more accurate than analysts' forecasts over
longer horizons, as well as for small and young firms, and that over shorter horizons the
difference in accuracy is not economically significant.

The Accounting Review **«■»!!■«

January 2014 ν

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 20 Ball and Brown

• In comparison w
observed returns
statistical signifi
• In part because
careful in execut
the Wall Street J
Journal; we close
number of corre
versus log return
Asset Pricing Mo
• Finally, we avoi
"a mechanism h
controversial cho
that one cannot
advocates of radi

VII. LIMITATIONS

In hindsight and by today's standards, BB68 has several notable deficiencies, some
are listed below.

• The sample size was relatively small, comprising nine annual observations for each of 261
firms, giving a total of 2,349 firm-year observations. This compares with current sample
sizes well in excess of 100,000. Large sample sizes can be a two-edged sword, however.
They can increase the distance between the data and the researcher, who risks being unaware
of important data characteristics. They also can encourage the researcher to focus on easily
attainable t-statistic cut-offs, at the expense of addressing whether the magnitudes of the
reported effects are economically substantial and whether they are consistent with both
theory and common sense.
• At the time, CRSP provided only monthly stock returns. Subsequent studies utilize
higher-frequency data. However, with the exception of testing for anomalous price
reactions, it is not obvious that higher-frequency data would have changed our
conclusions substantively.
• The test statistics were weak by today's standards. We conducted a non-parametric Chi
square test, assuming independence.20 We were more interested in magnitudes and happy
with a simple test. More complicated tests were not feasible: we had to write our own
computer programs and could not store large matrices in computer memory (The University
of Chicago's computer had 32K of addressable memory for data and software). This too was
a two-edged sword: computing turnaround was as long as 24 hours, so one thought more
about the specification in advance, and data mining was not an option.
• There was a severe sample selection bias. The initial Compustat file covered larger firms that
were in existence at the time it was constmcted. Consequently, it did not cover smaller firms
and those that were delisted due to acquisition or failure. We imposed additional selection
bias by requiring 21 years of earnings data, 100 months of price data, and earnings
announcement data, as well as a December 31 year-end.

20 The only previous event study, Fama et al. (1969), did not provide any test statistics. The enormous influence
that paper had on the literature reinforces the point about the importance of economic versus statistical
significance.

V"* American
Accounting
Association
The Accounting
T/ i . n
Review
January 20

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 21

Needless to say, many of these research design f

provides one measure of the extent to which researc
also goes to show that it pays to have the first word

VIII. MISUNDERSTANDINGS

As might be expected of a novel piece of research, some aspects of BB68 were misun
One misunderstanding involved confusing our two principal results, which we d
"usefulness" (on which dimension accounting income received a positive rating) and "t
(a negative rating). Smith Bamber, Christensen, and Gaver (2000) show that the
literature essentially ignored the timeliness result, and instead conveyed the erroneous
that earnings announcements release substantial new information. They attribute the
researchers over-generalizing the results from the unrepresentative sample of small firm
(1968). Ball and Shivakumar (2008) attribute it also to researchers comparing event-da
price volatility with that of an average day, thereby depicting an apparent "spike," wh
are only four such event days each year and their volume and volatility constitute a smal
volume or volatility aggregated over the whole year. We suspect that another reason fo
our negative rating on timeliness was the understandable desire of researchers to
"accounting matters." The belief that accounting income definitely matters was in fact
point, when we reasoned it must matter to have survived as an important institutional f
evidence we reported indicates the reason it matters cannot involve timeliness.
Another misunderstanding concerned the implications of our results for the extant
We note above that although our research design did not directly test any of the alternativ
schemes proposed in that literature, we were able to test the literature's proposition that th
reporting scheme produced meaningless numbers. Nevertheless, researchers of the "o
generally dismissed price-based research because it did not test the alternative reportin
ignoring our evidence that users did not act as if accounting income is totally devoid o
Thus, in his review of price-based research Chambers (1974, 50) argued:

it just does not tackle the kind of question which has concerned those whose explorat
research processes are criticized in the opening paragraphs of the paper. For that rea
offers no mode of testing the propositions of those who have concerned themselves
the betterment of accounting theory or practice.

The counter-factual in the form of any proposed alternative to the status quo is by d
unobservable, not only to us, but also to the proponents of such schemes. But that does
price-based research cannot be used to test propositions made by those proponents. We
reported evidence contradicting the proposition, asserted regularly in the literature sin
(1929), that accounting income is devoid of meaning because it is not founded on a ho
set of principles, rules, and methods. Furthermore, there were wider implications, sinc
result brought into question the whole way of thinking on which that proposition and t
alternative accounting schemes were based.
A related misconception is that there is little or no overlap between "positive"
research and "normative" a priori research. A distinction between them, which dates at
back as Hume, was introduced to the economics literature in 1891 by John Neville Keyn
of John Maynard Keynes, as follows:21

Quoting from the fourth edition, reprinted in Keynes (1999, 22).

The Accounting Review Account**

January 2014 V

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 22 Ball and Brown

a positive scienc
is; a normative o
criteria of what
the actual, (emp

Keynes' distincti
Chicago on testin
While our resea
viewed it as havi
propositions abou
ought to be." In
"what ought to be
mode of research
theorizing, and n
A related concer
our paper was pu
norms.22 This co
overlap between
genesis of a now
including investo
compensation, sup
these uses prior
develop optimal s
standards without
In that sense, th
theorizing based

IX. SOME LITERATURE THAT ENSUED

One reason for the success of BB68 was that it opened up a variety of research poss
the relation between financial statement variables and stock prices. The following is a s
research that ensued, in approximate chronological order:

1. International replication of the results, starting (no surprise here) with Austral
1970, 1972);
2. Extending the results to quarterly earnings announcements, in Brown and
(1972);
3. Investigating the time-series behavior of accounting earnings, starting with t
Watts (1972) verification that the random walk process we assumed when c
unexpected earnings is, in fact, a reasonable characterization;
4. Extending the earnings-returns relation to higher moments by studying the r
between accounting and market measures of risk (Ball and Brown 1969; Beaver
and Scholes 1970);
5. Studying the relation between firms' changes in accounting techniques and the
prices (Ball 1972). Following the insights of Watts (1977), this work took a radi

~2 For example, see the discussion in Leisenring and Johnson (1994), Schipper (1994), and Beresford
(1995).
Applyin the automobile industry analogy above, how can cars be redesigned without any knowledge of how
23 Applying
they are driven, what they are used to transport, whether they are simply kept for show, etc?

American fi \ , · r> ·
Accounting The Accounting Review
^ Association January 20

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 23

toward studying firms opportunistically lobbyin

accounting techniques (Watts and Zimmerman 1
to influence debt constraints and management
of thinking then led to the modern "earnings m
6. Earnings forecasts issued by managers (Foster
7. Using daily returns (Foster 1977) and short-ev
response coefficients" (Beaver, Lambert, and
Shah 1984);
8. Information transfers between firms that are
(Firth 1976; Foster 1981);
9. The nature and determinants of post-announce
1984; Bernard and Thomas 1990);
10. The distinction between recognition and dis
1989).
11. Nonlinearities in the returns-earnings relation24 (Freeman and Tse 1992), which Hayn
(1995) attempted to explain in terms of corporate liquidation options and Basu (1997)
attributed to conditional conservatism, under which timely loss recognition generates more
large negative transitory earnings components than positive;
12. Earnings decomposition into cash flow and accruals (Dechow 1994; Sloan 1996);
13. Exploiting cross-regime effects such as international differences (Ball et al. 2000) and
differences between private and public companies (Ball and Shivakumar 2005) to better
identify the economic and political determinants of important properties of financial
reporting, such as timeliness and conservatism.
14. Aggregate earnings and returns (Kothari, Lewellen, and Warner 2006).

X. CONCLUDING COMMENTS

Overall, Ball and Brown (1968) expressed a view of information in markets that was
accounting literature, and contributed to a sea change in attitudes toward finan
disclosure, and financial reporting. Viewed more generally, the research demon
accounting is a viable area for market-based and information-economics reasoning, at
these areas were just being developed. It helped elevate the status of accounting rese
colleagues in adjacent areas and in universities generally. We are fortunate and prou
authored it.

REFERENCES

Anderson, D., and R. Leftwich. 1974. Securities and obscurities: A case for reform of the
accounts. Journal of Accounting Research 12 (2): 330-340.
Ball, R. 1972. Changes in accounting techniques and stock prices. Journal of Account
(Supplement): 1-38.
Ball, R. 1978. Anomalies in relationships between securities' yields and yield-surrog
Financial Economics 6 (2-3): 103-126.
Ball, R., and P. Brown. 1968. An empirical evaluation of accounting income numbe
Accounting Research 6 (2): 159-178.
Ball, R., and P. Brown. 1969. Portfolio theory and accounting. Journal of Accounting Resear

As we predicted in BB68, footnote 40.

The Accounting Review Ό i I Accounting

American

January 2014 ^ αμολλοπ

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
 24 Ball and Brown

Ball, R., S. P. Kothar

accounting earning
Ball, R., and L. Shiv
timeliness. Journa
Ball, R., and L. Shiva
Research 46 (5): 97
Ball, R., and R. Watt
(3): 663-681.
Barth, M. E. 2013. M
Stanford Universi
id=2235759

Basu, S. 1997. The conservatism principle and the asymmetric timeliness of earnings. Journal of
Accounting and Economics 24 (1): 3-37.
Beaver, W., P. Kettler, and M. Scholes. 1970. The association between market determined and accounting
determined risk measures. The Accounting Review 45 (4): 654—682.
Beaver, W., R. Lambert, and D. Morse. 1980. The information content of security prices. Journal
Accounting and Economics 2 (1): 3-28.
Beaver, W. H. 1968. The information content of annual earnings announcements. Journal of Accountin
Research 6 (Supplement): 67-92.
Beaver, W. H., C. Eger, S. Ryan, and M. Wolfson. 1989. Financial reporting, supplemental disclosures, an
bank share prices. Journal of Accounting Research 27 (2): 157-178.
Beresford, D. R., and L. T. Johnson. 1995. Interactions between the FASB and the academic community.
Accounting Horizons 9 (4): 108-117.
Bernard, V. L., and J. K. Thomas. 1990. Evidence that stock prices do not fully reflect the implications o
current earnings for future earnings. Journal of Accounting and Economics 13 (4): 305-340.
Bradshaw, M. T., M. S. Drake, J. Ν. Myers, and L. A. Myers. 2012. A re-examination of analysts' superiorit
over time-series forecasts of annual earnings. Review of Accounting Studies 17 (4): 944—968.
Brown, P. 1970. The impact of the annual net profit report on the stock market. The Australian Accountant
40 (July): 277-283.
Brown, P. 1972. Those half-yearly reports. In Society Bulletin. Canberra, Australia: Australian Society o
Accountants.

Brown, P. 1989. Ball and Brown [1968]. Journal of Accounting Research 27 (Supplement): 202-217.
Brown, P., and J. W. Kennelly. 1972. The informational content of quarterly earnings: An extension a
some further evidence. The Journal of Business 45 (3): 403-415.
Canning, J. B. 1929. The Economics of Accountancy. New York, NY: The Ronald Press Co.
Chambers, R. J. 1966. Accounting, Evaluation and Economic Behavior. Englewood Cliffs, NJ: Prent
Hall, Inc.
Chambers, R. J. 1973. Observation as a method of inquiry-—The background of securities and obscurities.
Abacus 9 (2): 156-175.
Chambers, R. J. 1974. Stock market prices and accounting research. Abacus 10 (1): 39-54.
Chambers, R. J. 1976. Fair Financial Reporting in Law and Practice. Saxe Lecture in Accounting, Baruch
College-CUNY. Available at: http://www.baruch.cuny.edu/library/alumni/online_exhibits/digital/
saxe/saxe_1976/chambers_76. htm
Davidson, S. 1966. Editor's preface. Journal of Accounting Research, Empirical Research in Accounting:
Selected Studies 1966 4 (Supplement): iii.
Dechow, P. M. 1994. Accounting earnings and cash flows as measures of firm performance: The role of
accounting accruals. Journal of Accounting and Economics 18 (1): 3—42.
Demsetz, H. 1969. Information and efficiency: Another viewpoint. Journal of Law and Economics 12 (1):
1-22.

Dyckman, T. R., and S. A. Zeff. 1984. Two decades of the Journal of Accounting Research. Journal of
Accounting Research 22 (1): 225-297.

Accounting The Accounting Review

V A"°**,,on January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
Ball and Brown (1968): A Retrospective 25

Edwards, Ε. Ο., and P. W. Bell. 1961. The Theory and

Angeles, CA: University of California Press.
Fama, E. F. 1965a. The behavior of stock-market pr
Fama, E. F. 1965b. Random walks in stock market p
Fama, E. F., L. Fisher, M. C. Jensen, and R. Roll. 1969.
International Economic Review 10 (1): 1-21.
Firth, M. 1976. The impact of earnings announcement
The Economic Journal 86 (342): 296-306.
Fisher, L., and J. H. Lorie. 1964. Rates of return on inv
of the University of Chicago 37 (1): 1—21.
Foster, G. 1973. Stock market reaction to estimates of
Accounting Research 11 (1): 25-37.
Foster, G. 1977. Quarterly accounting data: Time-se
Accounting Review 52 (1): 1-21.
Foster, G. 1981. Intra-industry information transf
Accounting and Economics 3 (3): 201-232.
Foster, G., C. Olsen, and T. Shevlin. 1984. Earnings
returns. The Accounting Review 59 (4): 574—603.
Freeman, R. N., and S. Y. Tse. 1992. A nonlinear mode
Journal of Accounting Research 30 (2): 185-209.
Friedman, M. 1953. The methodology of positive e
Chicago, IL: University of Chicago Press.
Gaffikin, M. J. R. 1988. Legacy of the golden age: Rec
Abacus 24 (1): 16-36.
Griffin, P. A. 1976. Competitive information in the sto
and analysts' forecasts. The Journal of Finance 3
Hagerman, R. L., M. E. Zmijewski, and P. Shah. 1984.
earnings forecast errors and risk-adjusted stock re
540.

Hayn, C. 1995. The information content of losses. Jo

Holthausen, R. W. 1981. Evidence on the effect o
contracts on the choice of accounting techniques: T
of Accounting and Economics 3 (1): 73-109.
Keynes, J. N. 1999. The Scope and Method of Politi
Kitchener, Canada: Batoche Books.
Kothari, S. P., J. Lewellen, and J. B. Warner. 2006.
behavioral finance. Journal of Financial Econom
Kuhn, T. S. 1969. The Structure of Scientific Revolut
Leftwich, R. 1980. Market failure fallacies and acc
Economics 2 (3): 193-211.
Leisenring, J. J., and L. T. Johnson. 1994. Accounting
Accounting Horizons 8 (4): 74-74.
Mattessich, R. 2008. Two Hundred Years of Accountin
Ideas, and Publications (From the Beginning of th
Twenty-First Century). London, U.K.: Routledge.
Nelson, C. 1973. A priori research in accounting.
Evaluation, edited by N. Dopuch, and L. Revsine, U
Research in Accounting, University of Illinois.
Nichols, D., and J. Wahlen. 2004. How do earnings nu
accounting research with updated evidence. Acco
Ogden, C. K., and I. A. Richards. 1923. The Meaning of
Thought and of the Science of Symbolism. Oxford

The Accounting Review Ό i I American

Accounting

January 2014 v A"°C'*tk>"

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms
26 Ball and Brown

Ohlson, J. A. 1991. The

Contemporary Accoun
Schipper, K. 1994. Acade
(4): 61-73.
Sloan, R. G. 1996. Do st
earnings? The Account
Smith Bamber, L., T. E.
know? A case study o
Organizations and Soci
Watts, R. L. 1977. Corp
Australian Journal of
Watts, R. L., and J. L. Z
standards. The Accoun
Wheeler, J. T. 1970. Acc

γΡΛΐ American
W ÎSSSmiS! The Accounting Review
January 2014

This content downloaded from

202.174.120.210 on Thu, 11 Jan 2024 16:19:37 +00:00
All use subject to https://about.jstor.org/terms