Does Study of the Information Content of Profits Announcements Explain Why Firms Use Particular Accounting Practice? Does It Help to Predict Which Firms Will Use Particular Accounting Practices?

10604 Words Aug 13th, 2013 43 Pages
Australasian Accounting Business and Finance Journal
Volume 1 Australasian Accounting Business and Finance Journal Issue 1 Australasian Accounting Business and Finance Journal Article 1

Accounting Research and Theory: The age of neoempiricism
M. Gaffikin
University of Wollongong, gaffikin@uow.edu.au

Follow this and additional works at: http://ro.uow.edu.au/aabfj Copyright ©2007 Australasian Accounting Business and Finance Journal and Authors. Recommended Citation Gaffikin, M., Accounting Research and Theory: The age of neo-empiricism, Australasian Accounting Business and Finance Journal, 1(1), 2007. Available at:http://ro.uow.edu.au/aabfj/vol1/iss1/1
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Nevertheless, in the literature reference is made to three types of EMH, the strong form (markets very efficient), semi-strong and weak (markets not very efficient). A strongly efficient market would be one in which security prices fully reflect all available information – and do so immediately the information becomes available – all new information is immediately absorbed by the market. A leading figure in the development of the EMH in finance, Eugene Fama, states that a market is efficient if “security prices fully reflect all available information” (1970, p 384). It should be noted that available information will include all information that investors use to make investment decisions and accounting will only be a part of such information. CAPITAL MARKETS RESEARCH Prior to the 1960s the emphasis in finance was on fundamental analysis, That is, attempting to determine a valuation (an intrinsic value) of securities based on past and present financial information (mainly financial statements) and industry and other macroeconomic data. The aim of the analysis was to uncover mispriced securities (in order to take advantage of the mispricing), that is trade in these securities in the knowledge that the prices are not “correct”. Employing the new theories in economics and finance, Ball and Brown’s study was an attempt to

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