Discussion of Enforceable Accounting Rules and Income Measurement by Early 20th Century Railroads

Sivakumar and Waymire examine differences in the properties of US railroads' reported earnings before and after concurrent changes in accounting rules and rate regulations. Although the accounting rules were intended to combat income smoothing, Sivakumar and Waymire find little evidence that income smoothing was reduced after their adoption. However, they find evidence of increased income conservatism, consistent with the notion that railroads were trying to offset stricter rate regulation. The paper contributes to research on the effects of direct (accounting rules) and indirect (rate-setting) regulations on income measures, as well as to accounting research methodology.The conference discussion focused on the institutional and economic environment during the sample period, which the authors have integrated into the paper. Conferees also questioned the assumptions underlying the income smoothing tests and the interpretation of the results. In the following sections I discuss the authors' research setting, the new income smoothing test, and other research design issues. I conclude that empirical historical research allows us to address many fundamental questions about accounting development and regulation, but that current research designs should be adapted to the very different institutional environment