Research Interests: accounting (mathematical models in accounting, external accounting andcapital market equilibrium).finance (corporation finance, portfolio theory).statistics (model comparison and selection).
Professor Nicholas J. Gonedes passed away on January 21, 2022.
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Nicholas J. Gonedes (1982), Discussion of Corporate Financial Reporting: A Methodological Review of Empirical Research, Journal of Accounting Research, Vol, 20 Supplement, pp. 235-238.
Abstract: The article presents a critique of the study "Corporate Financial Reporting: A Methodological Review of Empirical Research," by Ray Ball and George Foster in the 1982 supplement issue of this journal. The author looks particularly at a conclusion reached by Ball and Foster related to the resources available to accounting researchers, which the author feels is not based in reason but in personal judgment. The author also expresses his doubt about the argument that Ball and Foster make about the quality of the research setting.
Nicholas J. Gonedes (1981), Evidence on the “Tax Effects” of Inflation Under Historical Cost Accounting Methods, Journal of Business, Vol. 54. no. 2, pp. 227-270.
Abstract: It is often argued that the failure to use indexation (i.e., the use of historical cost accounting methods) implies that real income tax rates will vary directly with rates of inflation. This substantive effect of mere bookkeeping methods is often predicted even though it is recognized to have some adverse implications. This is the "tax effects of inflation" hypothesis. The major objective of this paper is to examine the descriptive adequacy of this hypothesis using a variety of macroeconomic data for the years 1929-74. My empirical results appear to be substantially inconsistent with the tax-effects hypothesis.
Nicholas J. Gonedes (1980), Public Disclosure Rules, Private Information-Production Decisions, and Capital Market Equilibrium, Journal of Accounting Research, Vol. 18 No. 2 Autumn, pp. 441-476.
Abstract: The article refers to disclosure rules issued by the U.S. Securities and Exchange Commission and the Financial Accounting Standards Board and discusses public information-production decisions and their effect on firms, groups of security-holders, and cost functions for private information production. Explanations are given for: the two-parameter asset-pricing model; the cost effects and substitute signals in an equation showing that they become equal to the substitution effect plus the wealth effect coefficient times the change in wealth; price-productivity effects; capital market equilibrium; optimality conditions; and the demand functions for privately produced signals.
Nicholas J. Gonedes and Nicholas Dopuch (1979), Economic Analyses and Accounting Techniques: Perspective and Proposals, Journal of Accounting Research, Vol. 17 No. 2 Autumn, pp. 384-410.
Abstract: The article refers to empirical research on materiality, studies on the connection between accounting methods and decision making, the stochastic properties of accounting numbers, and four types of economic analysis. The problems resulting from accounting techniques in economic analysis--.particularly in industrial organization research and macroeconomic modeling and macroeconomic policy making--which can bias empirical research are discussed. Accounting numbers are considered random variables, which have systematic properties that are affected by accounting methods and data availability. Internal validity, the "omitted variables" problem, the "true value," materiality, time-series approaches, and a proposed technique that is based on simulated data are mentioned.
Nicholas J. Gonedes (1978), Corporate Signaling, External Accounting, and Capital Market Equilibrium: Evidence on Dividends, Income, and Extraordinary Items, Journal of Accounting Research, Vol. 16 No. 1 Spring, pp. 26-79.
Abstract: The article investigates the extent to which three random variables reflect information pertinent to assessing equilibrium values of the firms. The random variables are income numbers, dividend numbers and extraordinary income items. Predictive distributions of income numbers can be used in making inferences about predictive distributions of the attributes of firms' decisions. Dividend-change announcements reflect information available to management, but not to investors in general. Latitude choice of management regarding dividend changes provides the motivation for viewing dividend announcements as potential signaling devices.
Nicholas J. Gonedes and Harry V. Roberts (1977), Differencing of random walks and near random walks, Journal of Econometrics, 6, pp. 289-308.
Abstract: The traditional rationale for differencing time series data is to attain stationarity. For a nearly non-stationary first-order autoregressive process—AR (1) with positive slope parameter near unity—we were led to a complementary rationale. If one suspects near non-stationarity of the AR (1) process, if the sample size is ‘small’ or ‘moderate’, and if good one-step-ahead prediction performance is the goal, then it is wise to difference the data and treat the differences as observations on a stationary AR (1) process. Estimation by Ordinary Least Squares then appears to be at least as satisfactory as nonlinear least squares. Use of differencing for an already stationary process can be motivated by Bayesian concepts: differencing can be viewed as an easy way to incorporate non-diffuse prior judgement—that the process is nearly non-stationary—into one's analysis. Random walks and near random walks are often encountered in economics. Unless one's sample size is large, the same statistical analyses apply to either.
Nicholas J. Gonedes (1976), The Capital Market, The Market for Information, and External Accounting, Journal of Finance, Vol. 31 Issue 2, pp. 611-630.
Abstract: This paper explored several aspects of information-production and capital market equilibrium that seem to have been ignored in the available literature. It was argued that the prevalent use of a definition of capital market efficiency imposing strong conditions on the information market seems to have disguised the importance of explicitly analyzing the market for information. One consequence is that many assertions about what capital market efficiency implies--about, e.g., "superior" portfolio performance and the allocation of resources to information-production--appear to be misleading, because they do not deal with the relevant market. Moreover, it is usually not recognized that some evidence interpreted as being inconsistent with capital market efficiency is best viewed as pertaining to the market for information rather than the capital market. More generally, failure to explicitly consider the market for information may induce unwarranted inferences about the capital market. Finally, it was argued that, in general, the notion of capital market efficiency does not, taken by itself, provide a basis for fully understanding the connection between external accounting and capital market equilibrium, or any other potential source of information and capital market equilibrium.
Nicholas J. Gonedes (1976), Capital Market Equilibrium for a Class of Heterogeneous Expectations in a Two-Parameter World, Journal of Finance, Col. XXXI (March), No. 1, pp. 1-15.
Abstract: The single-period two-parameter asset pricing model underlies a substantial amount of theoretical and empirical work on asset pricing. The conventional assumptions used in deriving this model include perfect capital markets, risk aversion, homogeneous expectations, and the assumption that returns on all assets are distributed according to a multivariate normal distribution. Since the early work of Sharpe 1964, Lintner 1965a 1965b, and Mossin 1966, among others, considerable effort has been devoted to generalizing the conditions under which the two-parameter framework can be used to develop characterizations of capital market equilibrium. The work by Black 1972 and Fama 1970 are two examples of these kinds of efforts. A review of others is provided by Jensen . The present paper examines some implications of relaxing the assumption of homogeneous expectations (i.e., the assumption that agents' assessed distribution functions of returns are identical). This topic was investigated by, e.g., Eintner . Unlike the letter study, the present analysis imposes no special conditions on agents' utility functions, other than those already assumed in the two-parameter framework with homogeneous expectations. Instead, restrictions are imposed on the nature of agents' assessed distribution functions.
Nicholas J. Gonedes, Nicholas Dopuch, Stepehn H. Penman (1976), Disclosure Rules, Information-Production, and Capital Market Equilibrium: The Case of Forecast Disclosure Rules, Journal of Accounting Research, Col. 14 Issue 1, pp. 89-137.
Abstract: We considered two fundamental aspects of a forecast disclosure rule: (1) the extent to which the type of information to be disclosed conveys information pertinent to valuing firms -- the "information content issue" -- and (2) the extent to which a rule requiring forecast disclosure is consistent with Pareto optimal allocations of resources -- the "resource allocation issue." We dealt with the first issue by presenting empirical evidence on the information. content of income forecasts. The second issue was handled by discussing a variety of pertinent theoretical issues. In our discussion of the resource allocation issue, we considered several arguments that have been given in support of required forecast disclosure. Each argument alleges some kind of "failure" in the market for information. Our discussion indicates that, on theoretical grounds, these arguments are not sufficient for concluding that the alleged failures exist. Even if failures exist, the arguments are not so specific that they identify forecast disclosure rules as the appropriate remedies. This conclusion applies to rules established by the Financial Accounting Standards Board, the Securities and Exchange Commission, or any other regulatory body. Insofar as information-production issues are concerned, the debate over required forecast disclosure is of interest if forecasts convey information pertinent, to establishing firms' equilibrium values. Our empirical results on income forecasts are inconsistent with the statement that those forecasts convey no such information. Moreover, it appeared that much of the information content of forecasted earnings can be ascribed to the implications of extremely low (scaled) forecasts. Forecasts not in this class seemed to reflect little information beyond that already available, such as the information reflected in available forecasts of macroeconomic conditions. This observation seems to increase the importance of assessing the extent to which substitutes are available for forecasts of firms' earnings and the properties of those substitutes.
Nicholas J. Gonedes (1975), Risk, Information, and the Effects of Special Accounting Items on Capital Market Equilibrium, Journal of Accounting Research, Vol. 13 Issue 2, pp. 220-256.
Abstract: The article examines the impact of various information sources for capital market equilibrium prices of firm ownership shares within the U.S., particularly that of the annual special accounting reports for the Securities and Exchange Commission. The report also investigates the broader economic process of information effects on securities prices. The theoretical modeling of rates of return and new information disclosure is outlined. Conclusions are offered regarding the implications of the dependence of new information and the valuation of security risk attributes.
Strategic Cost Analysis is the process of analyzing and managing costs in order to improve the strategic position of the business. This goal can be accomplished by having a thorough understanding of which activities and costs support an organization's strategic position and which activities and costs either weaken it or have no impact. Subsequent cost management efforts can then focus on reducing or limiting expenditures on activities that add little or no strategic value, while increasing expenditures on activities that support the strategic position of the organization. Performance can then be evaluated to ensure that the chosen actions are taken, and that these actions are yielding improved strategic performance. Throughout the course, a strategic cost analysis and management framework will be applied across functions and organizations to highlight the cost analysis and performance evaluation methods available to forecast financial performance and improve strategic position.