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In a recent controversy in this journal, Briscoe and Hawke (BH, 1976) examine the impact of high versus low gearing on shareholder wealth, using data on 120 of the largest British companies. From 1965 to 1974, an analysis of associations between net monetary indebtedness (both short and long-term), gearing, and changes in shareholder wealth shows that even during periods of significant inflation, there is no significantly positive or negative correlation between indebtedness and changes in shareholder wealth.In a response to this article, Peasnell and Skerratt (PS, 1976) offer several methodological refinements to be incorporated in a more rigorous test of the same hypothesis. PS contend there are non-randomly-distributed intervening factors (e.g. competitiveness), which are not considered by BH, but which could affect changes in wealth. PS criticize the correlation analysis utilized by BH since it measures the association only between the two variables considered in the study-gearing and changes in wealth. PS also assert that purchasingpower gains and losses are likely to be insignificant, and therefore unlikely to appreciably impact shareholder wealth. However, this is just what BH tentatively conclude from their empirical analysis. Finally, PS suggest that future empirical studies either use pairwise comparisons between high and low geared f m s holding all other factors constant, or utilize a comprehensive multiple regression including gearing along with other factors that presumably affect wealth as independent variables.This subject is worth investigating as the basis for evaluating inflation-accounting proposals. The UK inflation-accounting requirements set forth in Statement of Standard Accounting Bactice No. 16 (March, 1980)' specify a current-cost adjustment for monetary workingcapital items in addition to a "gearing adjustment" in order to reflect the realized benefit or cost to equity shareholders stemming from long-term debt fmancing of productive assets.The present study provides evidence on the amount and timing of gains and losses engendered by inflation to equity shareholders of United States f m s from 1959 through 1975, a time frame characterized by a secular inflation. This time span includes periods of substantial adjustments in expected inflation rates, so that holders of monetary claims would have experienced holding gains and Journal of Business Finance & Accounting 7,4 ( I 980) 603losses based on changes in current market values of monetary assets and liabilities.The following section of the paper identifies a set of methodological issues suggested by a review of related empirical studies. This is followed by an explanation of the research design employed in the study and the empirical results obtained. In the final section, the authors' results are contrasted with those of Briscoe and Hawke's, and points for future inquiry are indicated. Background and Research Design