Choices between various accounting methods should not affect stock prices if
A)and only if the financial markets are strong form efficient.
B)the financial market is weak form efficient and the investors are at least somewhat rational.
C)the markets have recently experienced the bursting of a market bubble.
D)companies consistently select the most conservative of the allowable methods.
E)markets are at least semistrong form efficient and firms provide sufficient information so investors can analyze those choices.

Question

Quizplus · Accepted Answer

If markets are at least semistrong form efficient and firms provide sufficient information so investors can analyze those choices, stock prices should not be affected by choices between various accounting methods. This is because rational investors will incorporate all available information into their investment decisions, including the impact of accounting methods on financial statements. Therefore, the choice of accounting methods should not have a significant impact on stock prices in such markets.

Choices Between Various Accounting Methods Should Not Affect Stock Prices