powerpoint 4 - 1 6. The Information Approach to Decision...

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Unformatted text preview: 1 6. The Information Approach to Decision Usefulness Outline ¾ Information perspective of financial reporting ¡ First empirical research in accounting ¡ Earnings Response Coefficients ¡ Non-recurring items ¾ Accounting information as a public goods ¾ Conclusion 2 2 Overview of Info Perspective Users Accounting Information Valuation F(future earnings, Investment Decision 3 Cost of capital) Information Perspective ¾ Underlying assumption? EMH ¡ Form of disclosure doesn’t matter to investors ¡ Form of disclosure doesn t matter to investors ¡ Redundant for accountants to provide value estimate ¡ Investors may possibly be worse off with value estimates from accountants ¾ So: Is accounting information as compiled using 4 ¾ So: Is accounting information, as compiled using existing / past accounting rules, useful to the capital markets? 3 Information Perspective ¾ Reasons for security price response ¡ Investors have prior probability of future firm ¡ Investors have prior probability of future firm performance ¡ Investors obtain useful info from financial statements ¡ Investors revise their probabilities 5 ¡ Leads to buy/sell decisions ¡ Security price changes Finding the market response (1) ¡ EMH implies that market react quickly to new info ¡ It is important to identify the date when the earnings news was first made available to the public 6 Æ use the EA date in major financial media , examine reaction within a narrow window surrounding this date. 4...
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This note was uploaded on 05/06/2010 for the course COMM Comm 353 taught by Professor Zhang during the Spring '09 term at The University of British Columbia.

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powerpoint 4 - 1 6. The Information Approach to Decision...

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