| The purpose of this study was to determine if investors placed a different value on the earnings numbers generated by the full-cost accounting method and the successful-efforts accounting method. The research design classified petroleum exploration and production firms into either the full-cost group or the successful-efforts group, depending upon how a firm accounted for nonproductive oil wells. Litzenberg and Rao's equity-valuation model was then used to test whether investors placed a different value on the earnings, the earnings' risk, and the earnings' growth numbers of full-cost firms and successful-efforts firms. Regression results indicated that, on an overall basis, investors placed different values on the earnings categories of full-cost firms and successful-efforts firms. However, when the earnings, risk, and growth terms were examined separately, no significant differences were found between the full-cost firms and the successful-efforts firms. |
