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EMPIRICAL RESEARCH: IMPLICATIONS FOR FINANCIAL STATEMENT ANALYSIS

EMPIRICAL RESEARCH: IMPLICATIONS FOR FINANCIAL STATEMENT ANALYSIS. APPROACH TO ACCOUNTING THEORY. CLASSICAL APPROACH MARKET-BASED ACCOUNTING RESEACH POSITIVE ACCOUNTING THEORY. CLASSICAL APPROACH.

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EMPIRICAL RESEARCH: IMPLICATIONS FOR FINANCIAL STATEMENT ANALYSIS

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  1. EMPIRICAL RESEARCH: IMPLICATIONS FOR FINANCIAL STATEMENT ANALYSIS

  2. APPROACH TO ACCOUNTING THEORY • CLASSICAL APPROACH • MARKET-BASED ACCOUNTING RESEACH • POSITIVE ACCOUNTING THEORY

  3. CLASSICAL APPROACH • Evaluate accounting methods and technologies in term of how close reported information comes to some preconceived “true” picture of the firms • Deducting correct accounting methods from stated set of concepts, principles, and objectives

  4. MARKET BASED RESEARCH • Efficient Market Theory • No Trading advantages accrue to users of financial statement because information contained in them is instantaneously impounded in price • Modern Portfolio • CAPM • Since the expected return for a given firm does not depend on risk that can be diversified away, information regarding the outlook for a specific firm was largely irrelevant • No-effect hypothesis vs mechanistic hypothesis

  5. POSITIVE ACCOUNTING RESEARCH • Referred to as: contracting theory or economic consequences of accounting • Disclosure and regulatory requirement • Agency theory • Bonus plan hypothesis • Debt covenant hypothesis • Political cost hypothesis

  6. MARKET ANOMALIES • January Effect • Monday Effect • Size Effect • Price Earnings Ratio • Book to market ratio

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