Early advocates of security-price research now recognize there are limitations to this research for use in choosing the best accounting policies and evaluating the economic consequences of alternative accounting policies on security prices. Which of the following is not a reason for these limitations?

Question

Quizplus · Accepted Answer

The use of historical costing distorts financial statement amounts is not a reason for the limitations of security-price research. The other three options are valid reasons. The public-good nature of accounting information, the existence of free riders, and resultant market failure in terms of optimal resource allocation imply that security-price research cannot fully capture the economic consequences of alternative accounting policies.

Early Advocates of Security-Price Research Now Recognize There Are Limitations