Structural change and innovation in the market for financial services in recent years have drawn attention to the fact that traditional definitions of money as included in demand for money models and monetary aggregation measures may be misspecified. It is unclear whether or to what extent broader measures of money should be used as targets in monetary policy or as indicators of changes in the real economy. This thesis is a nonparametric empirical test of monetary asset, leisure and consumption good data which seeks to examine whether the underlying structure of preferences implied by monetary aggregation can be said to be justified. Using recent software routines, we test Canadian data for the years 1968-I to 1989-IV in order to determine whether it meets the criteria for utility maximization and for a structure of preferences represented by weak separability. We find that only a narrow grouping of monetary assets meets these requirements. Further, we conclude that many other studies in the literature which have merely assumed weak separability have been misspecified.

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This thesis presents a three step analysis of voluntary income increasing accounting changes. We first propose a theory as to why managers would elect to modify their reporting strategy. This theory builds on research on the economic factors motivating accounting choices, since it is assumed that accounting choices are a function of political costs, manager's compensation plans and debt constraints. Specifically, we claim that adversity motivates the manager to effect an income increasing accounting change. Secondly, the thesis proposes a theoretical analysis of the potential market responses to a change announcement. The stock price effect of a change announcement is examined as a function of investors' rational anticipations of the manager's reporting actions and as a function of the level of information about adversity that investors may have prior to a change announcement. An empirical analysis is presented in the third step of this thesis. Our empirical findings are that: 1- Change announcements, on average, have no significant impact on the market. 2- Relative to the Compustat population as a whole, firms that voluntarily adopt income increasing accounting changes exhibit symptoms of financial distress, suggesting that such change announcements are associated with financial adversity. 3- Firms which voluntarily adopt income increasing accounting changes tend to exhibit symptoms of financial distress one or more years prior to the change year, suggesting that change announcements tend not to be a timely source of information conveying distress to the market. 4- There is a significant negative association between investors' proxies for prior information about adversity and the market impact of the change, especially for the subset of firms with above average leverage, suggesting that the information content of the accounting change signal is inversely related to investors prior information about adversity. The empirical results thus support the view that investors, at the time a change occurs, have information about the prevailing state of the world, and that they have rational anticipations with respect to the manager's reporting behavior. In this respect, the accounting change is, on average, an inconsequential signal that adds little to what investors already knew before the change announcement. / Business, Sauder School of / Graduate

Available cost-variance investigation models are reviewed and evaluated in Chapter Three of this study. As shown in the chapter, some models suffer from ignoring the costs and benefits of the investigation. Other models, although meeting the cost-benefit test, fail to capture the essence of the real-world problem. For example, they fail to handle the imprecision (fuzziness) surrounding the investigation decision. They are also based on the unrealistic assumptions of (1) a two-state system, and (2) constant level of accuracy and precision. In addition, the models suffer from the lack of applicability. They require precise numerical inputs to the analysis that are difficult, if not impossible, to attain. This dissertation provides a new cost-variance investigation model that may overcome some of these problems. The new model utilizes the calculus of fuzzy set theory which was introduced by Zadeh in 1965 as a means for dealing with fuzziness. The theory is also intended to reduce the need for precise measures that are difficult to obtain. Consequently, the theory seems to be well suited for handling the investigation problem. (Chapter Two provides a summary of the theory and its applications in the decision making area.) The new model is presented in Chapter Four and extended in Chapter Five. The performance is assumed to be described by·a transformation function, S_t+1 = f(S_t,D_t), where S_t, D_t, and S_t+1 represent the sets of the input states, available decisions, and output states, respectively. The transformation function can be deterministic, stochastic, or fuzzy. Methods are suggested to obtain the optimal decision for the three cases of transformation functions. These methods are based on formulating a fuzzy optimal decision set D_O = {u_{D_O}(d_j)d_j}, where u_{D_O}(d_j) represents the compatibility (i.e., relative merit) of decision d_j with the optimal decision set. The optimal decision is the decision having the highest compatibility with the fuzzy optimal decision set. In addition to allowing for different transformation functions, the new model allows for varying degrees of out-of-controllness. The model also provides for the fuzziness (imprecision) surrounding (1) the states of performance, (2) the net benefits from the investigation, and (3) the probabilities. This is done by employing the basic concept in fuzzy set theory, namely, the membership function concept. The new model was examined (in Chapter Six) for feasibility. First, the model was computerized. Then, it was applied to an actual investigation problem encountered by a manufacturing company. As the application may indicate, the new model can be applied to real-world situations. / Ph. D.