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ch5 - Chapter 5 Users of financial statement dataChapter 5...

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(c) Mikhail B. Pevzner and George Mason University Chapter 5 Users of financial statement data- Chapter 5, LLS
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(c) Mikhail B. Pevzner and George Mason University Re-cap We have already talked about the primary objective of financial accounting which is to provide information about a firm to shareholders and debt-holders . In this lecture, we will touch on this subject in a little greater detail.
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(c) Mikhail B. Pevzner and George Mason University External users Broadly, the external users of financial data are: – Shareholders; – Debt-holders; – Regulators to enforce the law; – IRS to collect taxes;
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(c) Mikhail B. Pevzner and George Mason University External users (continued) In particular, in addition to investors in general, corporate boards of directors seek financial information to evaluate performance of firm managers. Auditors need financial information to audit firm books and thus to protect interests of shareholders and debt-holders. Financial analysts need financial information to evaluate how a firm is doing and whether the stock is correctly priced.
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(c) Mikhail B. Pevzner and George Mason University Internal users Internal users are firm managers and other employees who need financial accounting information to: – Evaluate firms’ performance; – Develop corporate strategy; – Make firms more efficient; – Choose future projects; – Compensate employees;
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(c) Mikhail B. Pevzner and George Mason University How does accounting information affect firm stock prices (based on Landsman and Maydew, 2002)?
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(c) Mikhail B. Pevzner and George Mason University What does this graph tell us? • When a firm announces its earnings, stock price changes. • This effect suggests that accounting information has valuation effect, i.e. firm earnings numbers are used to estimate firm value.
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(c) Mikhail B. Pevzner and George Mason University How does the stock market react to earnings news? Stock prices increase in response to “good news”.
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