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

Question

Quizplus · Accepted Answer

Fair value accounting is the measurement model that best links share price and accounting information, according to value relevance research. This is because fair value accounting reflects the most up-to-date market prices and provides investors with the most accurate and relevant information about a company's assets and liabilities. Accrual accounting is also commonly used and may be more appropriate for certain types of assets, but fair value accounting has been found to have the strongest correlation with share prices. Historic cost accounting and cash accounting are generally not used for financial reporting purposes because they do not provide a comprehensive view of a company's financial position.

Value Relevance Research Suggests Which Measurement Model Best Links Share