COMM 318 Chapter Notes - Chapter 5: Abnormal Return, Net Income, Income Statement
6 Apr 2016
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Document Summary
Accouning informaion has value relevance when security prices respond to accouning informaion. Empirical evidence irst provided by ball and brown in 1968 security market reacions to earnings announcement. Accouning informaion is useful in assising investors in esimaing expected values and risks of securiies. Informaion is useful if it leads investors to change their beliefs and acions. Degree of usefulness for investors can be measured by the extend of volume or price change following the release of informaion. Although investors or accountants may beneit from useful informaion, society does not beneit as a whole for the following reasons: Cost: inancial statement users may ind informaion useful even though it costs society more than the increased usefulness is worth (i. e. in the form of higher product prices to help irms pay for generaing and reporing the informaion) Informaion afects people diferently: cost-beneit tradeofs to balance the compeing interests of diferent consituencies are required.
