Efficient Capital Markets And Accounting

Seminar paper from the year 2011 in the subject Business economics - Investment and Finance, grade: 1,0, University of Hull, course: Current Issues Financial Management, language: English, abstract: The study examines and critical reviews the literature for the different implications based on the three levels of the Efficient Market Hypothesis for investors and company managers. If the weak form of the EMH holds, the technical analyse is useless, but ninety percent of traders in London are using it. If the semi-strong-form holds the fundamental analysis, study of published accounts, search for undervalued companies are useless and investors should be focus on diversification and avoiding of transaction costs. Furthermore the semi-strong form would imply for managers, that accounting disclosure to deceived shareholders is useless, the company market value is the best indicator for the company value and management decisions, the company does not need specialists for the timing of issues and there are no opportunities for a cheap acquisition of another company. At least if the strong-form of the EMH holds, it would imply that even with insider information it would not be possible to get above average returns. The literature shows, that the studies of EMH have made an important contribution to our understanding of the security market. It also shows that in some cases scientific results do not strong influence the behaviour of manager and investors in the "real world".

The ending of the decade of the seventies and the dawning of the eighties can be characterized as a period of great uncertainty with prospects for economic political instability. High inflation and fluctuating exchange rates in the de veloped Western world have served to strengthen the forces of disequilibrium in the fmancial markets, leading to an investment situation with several unusual but significant factors. Capital spending by business, leading to the creation of new jobs, has not been reduced substantially during this period of uncertainty, as happened in similar periods in the past. This is shown in part by the continuing low unemployment rates in evidence during the period, which are in contradic tion to the trend exhibited in similar past periods. The expanding financing re quirements resulting from high price inflation have led to an increase in the capital intensity of firms, and thus to enhanced sensitivity of their income streams to economic fluctuations. At the same time, the record high interest rates that companies have had to pay to acquire this inflated amount of capital have caused a deterioration in the safety or quality indica tors by which the creditworthiness of the firms is judged. These developments tend to increase vii viii INTRODUCTION the stakes involved in business decision making. One important repercussion of this is that greater attention is now being focused on improving the quality of investment decisions.

Among banking industries and insurance and security sectors, systemic risk and information uncertainty can generate negative consequences. By developing solutions to address such issues, financial regulation initiatives can be optimized. Value Relevance of Accounting Information in Capital Markets is an essential reference source for the latest scholarly research on the importance of information asymmetries and uncertainties and their effects on the overall regulation of financial industries. Featuring extensive coverage on a wide range of perspectives, such as financial reporting standards, investor confidence, and capital flows, this publication is ideally designed for professionals, accountants, and academics seeking current research on the effects of the underlying elements in investing.

This text reviews the theory of the economic measurement of income and wealth in financial accounting and presents an informational perspective on accounting information. It is aimed primarily at second and third year accounting undergraduates and first year postgraduates.