Chapter 10 - Reactions of capital markets to financial reporting P3

Which of the following statements is not true regarding capital markets research?

A. It explores the role of accounting and other financial information in equity markets

B. It involves examining statistical relations between financial information and share prices or returns

C. It analyses individual responses to financial reporting.

D. It assesses the aggregate effect of financial reporting on investors.

Which of the following statements regarding capital markets research is true?

A. Capital markets research relies on the underlying assumption that equity markets are efficient.

B. Capital markets research typically assumes that equity markets are semi-strong-form efficient.

C. A large fraction of published research in leading academic accounting journals examines the relation between financial statement information and capital markets.

D. All of the given options are correct.

According to Zhang (2007), which of the following is not a negative effect of introducing the Sarbanes–Oxley Act (2002) in the US?

A. The out-of-pocket compliance costs are significant.

B. Executives complain that complying with the rules diverts their attention from doing business.

C. The Act exposes managers and directors to lower litigation risks and penalties.

D. CEOs take less risky actions, consequently changing their business strategies and potentially reducing firm value.

Which of the following statements is true, regarding the Ball and Brown (1968) study?

A. It is the first major capital markets research publication in accounting

B. It investigated the usefulness of accounting earnings under an historical cost model.

C. It found evidence to suggest that the information contained in the annual report is used in investment decision-making.

D. All of the given options are correct.

Which of the following statements is correct, regarding the voluntary disclosure of information provided by a firm?

A. Firms with more informative disclosure policies have a larger number of analysts following them, and more accurate analyst earnings forecasts

B. Firms with more informative disclosure policies have a lower number of analysts following them, and less accurate analyst earnings forecasts.

C. Increased voluntary disclosure within the annual report is associated with higher costs of equity capital.

D. There is no relationship between increased voluntary disclosures within the annual report and costs of equity capital.

Capital markets research is used to:

A. Investigate share price reaction to the disclosure of financial information

B. Investigate how share prices react to particular government announcements

C. Investigate how share prices react to companies winning particular awards

S D. All of the given options are correct.

Which of the following is true about the semi-strong form of efficiency?

A. All publicly available information is rapidly and fully impounded into share prices in a biased manner when released.

B. All publicly available information is rapidly and partially impounded into share prices in an unbiased manner when released.

C. Selected publicly available information is rapidly and fully impounded into share prices in an unbiased manner when released.

D. All publicly available information is rapidly and fully impounded into share prices in an unbiased manner when released.

Which of the following is a finding of Beaver, Lambert and Morse (1980)?

A. Share prices and related returns are related to accounting earnings.

B. Over short intervals, earnings are more strongly associated with returns than are realised cash flows

C. Fair value estimates of bank's financial instruments seem to provide a better explanation of bank share prices than historical cost.

D. Revaluation of assets results in better alignment of market and book values

Which of the following statements is true in regard to the results obtained by capital market research?

A. The relationship between earnings announcements and share price movements is inversely related to the size of the entity

B. Earnings announcements have a greater impact on the share prices of larger firms than on smaller firms.

C. Compared to US markets, the Australian market has larger adjustments during the year with slower adjustments at earnings announcement.

D. Share prices remain the same if investors 'fixate' on reported earnings without considering the relative magnitudes of cash and accrual components.

If market value is related to book value:

A. Returns should not be related to accounting earnings per share, divided by price at the beginning of the accounting period

B. Returns should be related to accounting earnings per share, divided by price at the beginning of the accounting period

C. Returns should be related to accounting earnings per share, multiplied by price at the beginning of the accounting period

D. Returns should be related to accounting earnings per share, divided by price at the end of the accounting period

Chapter 10 - Reactions of capital markets to financial reporting P3

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