Deck 8: Capital Markets Research and Accounting

Question 1

Which of the following factors are commonly considered by capital markets research? i.Accounting earnings
Ii)Unexpected earnings
Iii)Asset pricing
Iv)Market efficiency

A)i.,ii.and iv.only.
B)None of them.
C)i.and iv.only.
D)All of them.

Answer 1

D

Question 2

Which of the following is not an anomaly that has been noted to the efficient markets hypothesis?

A)Investor interest varies according to the market the share is traded in.
B)Market prices appear to react to more than just accounting information.
C)Returns of firms followed by analysts are superior to those that are not.
D)The returns of small listed firms appear to be smaller than those of larger firms.

Answer 2

B

Question 3

Information perspective studies have shown us that when compared to sophisticated investors,unsophisticated investors:

A)Underreact to good new and overreact to bad news.
B)Overreact to good news and underreact to bad news.
C)Overreact to news,both good and bad.
D)Are little different to their reactions.

Answer 3

B

Question 4

Which of the following has been found to suggest that the users of financial statements are either unwilling or unable to unravel the effects of earnings management?

A)Management engaging in 'big bath' accounting.
B)Managers using discretionary accounting to increase their compensation.
C)Managers using income smoothing to increase share price.
D)All of the above.

Question 5

Which of the following is NOT a finding or assumption of capital markets research?

A)The work of financial intermediaries impacts on share prices.
B)Capital providers consider auditors increase accounting information credibility.
C)The qualification of a financial report will have a significant impact on share price.
D)Analysts' earnings forecasts are more accurate than time-series models of earnings.

Question 6

The kind of study used to examine how quickly accounting measures capture changes in the information that is reflected in share prices over a given period is:

A)A qualitative study.
B)An events study.
C)An association study.
D)A normative study.

Question 7

Voluntary disclosure theory predicts:

A)Shareholders will always want increased and more accurate information.
B)Increased disclosure lowers information asymmetry,thus increasing the cost of capital.
C)Disclosure will be biased but on average credible.
D)None of the above.

Question 8

Value relevance research suggests which measurement model best links share price and accounting information?

A)Historic cost accounting.
B)Accrual accounting.
C)Fair value accounting.
D)Cash accounting.

Question 9

Capital markets research focuses on the relationship between:

A)Accounting information and standards setting.
B)Accounting information and capital markets.
C)Capital markets and the economy.
D)Standards setting and accounting information.

Question 10

It has been found that prices often lead earnings.Why is this thought to be the case:

A)Accounting recognition criteria are less stringent for losses than for gains.
B)Accounting conservatism 'garbles' earning signals about firm value.
C)Accounting statements are poor at incorporating information about human capital and other intangibles.
D)All of the above.

Question 11

Value relevance studies have shown that:

A)Losses are strongly associated with a firms ability to generate future cash flows.
B)Reported earnings are good measures of value-relevant events.
C)Any relationship between accounting earnings and share returns is weak.
D)None of the above.

Question 12

Which of the following is NOT one of the three key assumptions underlying capital markets research:

A)Expectations about dividends determine market price for shares.
B)Accounting information can be used to form expectations about profitability.
C)Expectations about profitability inform expectations about dividends.
D)None of the above,i.e.they are ALL assumptions underlying capital markets research.

Question 13

Value relevance studies attempt to assess the role of which qualitative characteristic of the Conceptual Framework?

A)Relevance and faithful representation.
B)Relevance.
C)Faithful representation.
D)None of the above.

Question 14

Accounting studies testing market efficiency have conclusively found that:

A)Markets are efficient in the long term.
B)Markets are highly efficient.
C)Markets are more efficient in the short term.
D)There is not conclusive evidence about market efficiency.

Question 15

To test whether accounting information and capital markets researchers examine:

A)The relationship between expected earnings and share returns.
B)The statements of shareholders about their decisions to sell shares.
C)The relationship between unexpected earnings and share returns.
D)The relationship between shareholder expectations and share price.

Question 16

One of the criticisms of capital markets research is:

A)It is only normative research.
B)It focuses too much on social preferences.
C)It is mainly focussed on US data.
D)It is mainly qualitative.

Question 17

Which of the following is NOT one of the three assumptions underlying value relevance literature?

A)Share prices adequately represent investors' use of information in valuing equity securities.
B)Accounting earnings are not highly associated with equity market value changes.
C)Equity users are the dominant users of financial reports.
D)Share-price-based tests can measure relevance and reliability as defined by accounting bodies.

Question 18

Which of the following is NOT an assumption behavioural finance?

A)People are over confident.
B)People make systematic errors in their thinking.
C)People anchor on long term experience and under appreciate recent experience.
D)People avoid realising paper losses but seek to realise paper gains.

Question 19

What phenomenon has been suggested as one of the most puzzling anomalies in accounting research and calls into question the efficient markets hypothesis?

A)Signalling theory.
B)Income smoothing.
C)Post-earnings announcement drift.
D)Big bath write-offs.