Accounting Thoery 04.pptVIP

4 - * 4.8 An Example of Full Disclosure Management Discussion and Analysis Forward-looking orientation Through the eyes of management Concept of information system is implicit Forward orientation and risk information increase main diagonal probabilities More relevant than historical cost-based financial statements. Less reliable? Reasonably consistent with decision theory Copyright ? 2012 Pearson Canada Inc 4 - * Financial Accounting TheorySixth EditionWilliam R. ScottChapter 4 Efficient Securities Markets 4 - * Chapter 4 Efficient Securities Markets 4 - * 4.1Overview Efficient securities markets Predicts that security prices fully reflect the collective knowledge and information-processing expertise of investors Implications for financial accounting The information content of disclosure, not the form of disclosure, is valued by the market Competition with other information sources Uninformed investors price-protect themselves ? Managers’ best interest to reduce information asymmetry ? Voluntary disclosure 4 - * 4.2 Efficient Securities Markets Definition (Semi-strong form) At all times… Fully reflect... All publicly available information… All information (Strong form) including inside information (Is it bad? Credible way to communicate) Past information (Weak form) A relative concept Efficiency defined relative to a stock of publicly available information Does not imply that market prices always reflect real underlying value 4 - * 4.2 Efficient Securities Markets Definition (Semi-strong form) (continued) Quickly adjust to the information publicly available Investing is a fair game if the market is efficient Investors cannot expect to earn excess returns on a security A security’s market price should fluctuate randomly over time There should be no serial correlation of share returns Stock prices will change with unexpected information, which occur randomly 4 - * 4.2 Efficient Securities Markets How do market prices fully reflect all available information?