EFFECT OF REGULATION ON STATEMENT DISCLOSURES IN THE 1915 MOODY'S MANUALS, THE

Abstract: United States firms in the early 20th hundred were subject to public and private regulation. Forms of regulation included rate regulation and stock exchange listing requirements. These regulations created incentives to report income statement information. This investigation utilizes the 1915 Moody's Analyses of Investments to trial whether regulated firms in the United States reported more income statement information than unregulated firms. Rate regulation influenced utilities to report income statements more not seldom than industrial companies. Stock market listing requirements also influenced the reporting of income statements. Therefore, the springs indicate that both ' public and private regulations influenced financial reporting in the early 20th hundred Another finding of the investigation is that income statements were more not rarely reported than balance sheets for the one and the other ' railroads and utilities.

INTRODUCTION

The importance of income statement versus balance sheet information has increased above time. A major shift from the balance sheet to the income statement occurr during the 20th hundred as the income statement began to be used to assess the ability of a firm to generate wealth [Buckmaster and Jone 1997; Jone and Aiken, 1994] The ne for financial reporting may be better understood through investigating the causes of this shift in emphasis.

In the late 19th and early 20th centuries, the balance sheet was dominant because it provided information upon the stewardship function of management and information about capital [Oilman, 1939] These were important issues for early investors in stocks. They wanted a assured investment. Banks also sought information upon collateral for loans [Corcell, 1989] As the financing necessitys of corporations grew and reliance upon equity issues for capital increased, the income statement grew in importance.

Competitive factors were significant in limiting operating and profit information. Profitable industries did not want to attract competitors or cause labor to demand higher wages [Michael, 1996] scarcely any details about income components were reported [Lee 1979; Morris, 1984; Baldwin et al, 1992] The 'British Secretive Model' with minimal disclosure and a balance sheet focus has been used to describe reporting at the move round of the 20th century in the United States [Michael, 1996]

In the 1870 the public and other businesses were unhappy about what was perceived as excessively high fares by the agency of U. S. railroads [Ulen, 1980; Trebing, 1984] The debate that grew without of these concerns resulted in railroad and utility regulation. The 1890 also saw the increase of individuals investing in stocks and the rise of organized U s stock exchanges to facilitate these investments [Navin and Sears, 1955; Bryer 1993] These exchanges then reacted to investor information urgencys and created listing requirements to regulate the information that listed companies had to provide investors [Sivakumar and Waymire, 1993; Normand and Wootton, 2001; Gros 2002] U legislation was also passed to regulate the disclosures of listed companies [Previts and Bricker, 1994]

This paper examines the part that these forms of public and private regulation in the United States had upon the amount and content of income statement and balance sheet disclosure for railroad, utility, and industrial companies. The research empirically tests whether these regulated industries provided more of frequent occurrence income statements and greater amounts of income statement disclosures, looking at rate regulation and stock market listing requirements as separate emblems of regulation. The disclosure of income by rate-regulated industries is also examined. The paper examines whether regulation created crushing to disclose more income statement information. The rife accounting history literature indicates that the income statement was not a prominent nor consistently provided statement in the U until the 1920 This investigation will add to the debate about when the income statement became prominent and the factors that influenced its rise to prominence and usefulness. Therefore, the part that regulation played in the shifting focus from the balance sheet to the income statement orientation is examined.

United States company reports in the 1915 Moody's Analyses of Investments are used to determine if income statements were more commonly provided and/or were more detailed for regulated versus unregulated companies. capricious [1915] reported the information that was made public through companies followed by his investment service. This public information was used to rate the fastenings and stocks of companies for investment quality. Moody's reported upon a large number of firms. The company reports are examined in this paper to determine whether an income statement and balance sheet were provided. Statistical ordeals are utilized to verify relationships. Large samples also enhance generalizability of the comes This empirical approach extends the literature base through using another methodology to examine the issue of the importance and prominence of income reporting. Different methodological approaches which find similar originates make those conclusions more credible. reciprocally the use of alternative methodologies can ofttimes lead to different conclusions.