Financial Accounting Theory - Ball and Brown Study
Conclusion of Research Paper
Through the paper and the information provided by the textbook, it is clear that two brief conclusions we can get and explanations will be attached.
1. The financial statement do impact the share price
2. The influence caused by the financial statement is limited.
The main reason, that financial statement impact the share price, is the efficient capital market. Namely, the efficient security market will go hand in hand with full disclosure. Once the relevant information provided by the management on the timely basis, the rational investors could make decision based on the new information.
Moreover, there are some differences between the narrow window and the long window, the previous one show the strong relationship between the financial report and the changes in share price. In long window, the price leads the earnings because the share price includes not only the accounting information but also other available information in efficient market. Thus, investors will read the financial statement and realize that whether they need to modify their investment portfolio.
Because of the rational and risk-averse investors, the information provided by the financial statement may do not have so huge influence on the share price. Before the statement is issued, the investors will try their best to get information about the company and they will gather the information about the company every time when they release information (not necessarily financial data). So investors could understand more and they can foresee the performance of the company before the issue date.
In general, annual financial report could issue some inside information that may hardly forecast by investors. The information asymmetry existed between inner and outer could be narrow when the financial statement released. According to the information approach, the accountants for the financial statement will provide more useful information in order to allow the
Through the paper and the information provided by the textbook, it is clear that two brief conclusions we can get and explanations will be attached.
1. The financial statement do impact the share price
2. The influence caused by the financial statement is limited.
The main reason, that financial statement impact the share price, is the efficient capital market. Namely, the efficient security market will go hand in hand with full disclosure. Once the relevant information provided by the management on the timely basis, the rational investors could make decision based on the new information.
Moreover, there are some differences between the narrow window and the long window, the previous one show the strong relationship between the financial report and the changes in share price. In long window, the price leads the earnings because the share price includes not only the accounting information but also other available information in efficient market. Thus, investors will read the financial statement and realize that whether they need to modify their investment portfolio.
Because of the rational and risk-averse investors, the information provided by the financial statement may do not have so huge influence on the share price. Before the statement is issued, the investors will try their best to get information about the company and they will gather the information about the company every time when they release information (not necessarily financial data). So investors could understand more and they can foresee the performance of the company before the issue date.
In general, annual financial report could issue some inside information that may hardly forecast by investors. The information asymmetry existed between inner and outer could be narrow when the financial statement released. According to the information approach, the accountants for the financial statement will provide more useful information in order to allow the