Academic journal article The Accounting Historians Journal

The Use of Historical Data in Accounting Research: The Case of the American Sugar Refining Company

Academic journal article The Accounting Historians Journal

The Use of Historical Data in Accounting Research: The Case of the American Sugar Refining Company

Article excerpt

Abstract: In 1908, the American Sugar Refining Company (ASR) reversed its long-held policy of secrecy as to its financial condition and performance. Prior work, applying contemporary capital market methods to ASR security price data of that period, has suggested a value to ASR shareholders of this policy reversal. This paper examines the historical record of that time and presents additional evidence on this matter, particularly in terms of identifying potentially confounding events occurring during the period under study. The results of this analysis suggest a difficulty in attributing observed abnormal returns to ASR's secrecy policy reversal on the basis of the results obtained from applying capital markets methods. This analysis is useful for scholars interested in applying modern capital market methods to historical data. It highlights the significance of the possible effects of contemporaneous historical events, focuses attention on the importance of a deep understanding of the historical period studied, and suggests a value in combining historical and empirical-markets methods to gain a richer understanding of the events and conditions in the time period under study.

The application of modern capital markets methods to explore accounting issues in historical time periods has attracted increased interest in recent years. One such study, Porter et al, (1995) (hereafter PSW) examine the effects of American Sugar Refining's (ASR's) 1908 reversal of a financial secrecy policy to determine the value of voluntary disclosure per se and voluntary disclosure policy. They find in part, using traditional capital markets methods and an event window around the time of the secrecy policy reversal, positive abnormal returns for ASR stock. These findings lead them to conclude that the secrecy policy reversal had measurable value to ASR stockholders. Narrowly, the purpose of this paper is to assess these findings and to consider whether other chronologically proximate events and conditions could plausibly have affected the valuation of American Sugar securities. Broadly, this paper seeks to address the use of data in capital markets studies of historical time periods, and the interpretation of results derived in such studies. Not addressed in this paper are underlying issues related to institutional arrangements, acceptable trading practices, and other matters pertinent to the issue of market efficiency during this historical period. We are not challenging the assumption that ASR security pricing was efficient with respect to publicly available information. Readers interested in studying issues of this period related to market efficiency are referred to Previts and Bricker (1994).

The remainder of this paper is organized as follows. First, we review the PSW study and summarize the historical events amidst which it is set, these being the illness and death of H.O. Havemeyer, the long time President of ASR, the succession of a new president, and the company's annual meeting at which time ASR formally announced the reversal of its long-held financial secrecy policy. Several research issues pertinent to the PSW study, primarily related to the existence of other possibly significant historical events during the period covered by PSW, are identified. We then provide a contextual, historical analysis of contemporaneous events and conditions of the period and use this as a basis for evaluating the PSW study of ASR. Particular attention is focused on events reported in the financial press that may have affected ASR security pricing, dates on which press reports related to ASR's financial secrecy policy are published, and the period of uncertainty surrounding the succession to the ASR Presidency that occurred following Havemeyer's death. Next, using the PSW data and methods, tests extending the original PSW analysis are conducted based on the results of our historical analysis. Following a presentation and discussion of these results, we conclude the paper with a discussion of the opportunities and difficulties of applying capital markets methods to data from historical time periods. …

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