Doctoral Dissertations

Date of Award

6-1987

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Business Administration

Major Professor

Jan R. Williams

Committee Members

Mikel G. Tiller, Hartwell C. Herring III, Charles B. Garrison

Abstract

General purpose financial reporting rests on the assumption that financial statements prepared to suit the needs of investors and creditors are also useful to a variety of other groups. This assumption was investigated with respect to the use of financial statements by organized labor. Current interest in the usefulness of supplementary, inflation-adjusted disclosures provided the means of narrowing the topic to a researchable question: Do labor union researchers adjust their estimates of corporate ability to pay in response to supplementary, inflation adjusted financial statement disclosures?

An experiment was conducted using officials of United States and Canadian labor unions as subjects. These subjects were asked to review fictitious financial statements and provide subjective assessments of the companies' ability to pay. Half the subjects received supplementary, inflation-adjusted disclosures that indicated substantially reduced earnings. Mean assessments of ability to pay did not vary between subjects receiving the supplements and those receiving historical cost statements only. Subjects receiving the supplements reported lower confidence in their estimates.

Subsequent analyses and consideration led to the conclusion that subjects had systematically disregarded the negative information conveyed by the supplementary disclosures. This finding provided no support for requiring that companies report such information. However, differences between labor and other financial statement users were highlighted by the subjects' selective use of financial statement information.

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