CHAPTER 8 Capital market research and accounting LEARNING OBJECTIVES After studying this chapter, you should be able to: 8.1 explain the role of capital market research for accounting 8.2 differentiate between an event study and an association study 8.3 outline the relationship between accounting measures of financial performance and share prices 8.4 identify findings of capital market research relevant to accounting 8.5 explain the role of information and information intermediaries in capital markets 8.6 distinguish between behavioural finance findings and mainstream finance findings 8.7 discuss how behavioural research contributes to an understanding of decision making. Copyright @ 2017. Wiley. All rights reserved. Rankin, Michaela. Contemporary Issues in Accounting, 2nd Edition, Wiley, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/swin/detail.action?docID=5049576. Created from swin on 2021-04-28 05:55:14.
Efficient market hypothesis Agency theory Management Risk ---- Earnings Corporations Shareholders Dividend Share prices Signalling theory Debtholders Interest Capital markets International standards Information asymmetry Behavioural - Copyright @ 2017. Wiley. All rights reserved. Mergers/ acquisitions Governments Australian Competition and Consumer Commission Australian Securities and Investments Commission CHAPTER 8 Capital market research and accounting 237 Rankin, Michaela. Contemporary Issues in Accounting, 2nd Edition, Wiley, 2017. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/swin/detail.action?docID=5049576. Created from swin on 2021-04-28 05:55:14.
Share markets have been popularised over the past two decades. This is reflected in regular media reports on the state of the daily markets. Share markets have particular importance to accounting because of the generally held assumption that accounting informs capital or share market participants. In Australia, this assumption is embedded in the Conceptual Framework. According to that framework, accounting aims at providing investors with relevant information for investment decision making, enabling investors to predict future cash flows and assess future risk and returns associated with particular shares. The assumption that accounting provides information useful to participants in share or capital markets raises the issue of whether those participants actually use accounting information in their decisions. This is an important issue for accounting because if capital market participants do not use accounting infor- mation when making decisions related to share transactions, what then is the purpose of accounting? Since the development of a conceptual framework for accounting, its policy makers have concentrated on improving this kind of information, so finding that it does not inform capital markets would be dev- astating for accounting and its policy makers. Copyright @ 2017. Wiley. All rights reserved. 8.1 Capital market research and accounting LEARNING OBJECTIVE 8.1 Explain the role of capital market research for accounting. Capital markets have been extensively researched, more so in the context of the United States than any other country. Since the seminal study by Ball and Brown,1 more than 1000 papers have been pub- lished covering various aspects of capital markets. Because the important issues for accounting are whether accounting information informs capital markets and whether capital market based research can inform the standard-setting process, the focus in this chapter is on research investigating the relation- ship between the two. However, there are limitations to the value of capital markets based research