Which of the following is correct?
A) Reported accounting numbers do not affect the transfer of resources.
B) Credit rating agencies use accounting information to assess only assets.
C) Efficient capital markets promote productivity and encourage innovation.
D) Efficient capital markets promote productivity but do not encourage innovation.

Question

Quizplus · Accepted Answer

Efficient capital markets are those where the prices of assets reflect all available information, which in turn promotes productive allocation of resources and encourages innovation. This is because assets are priced accurately, which incentivizes investors to invest in innovative projects and firms that can generate better returns. Therefore, option C is the correct choice. Option A is incorrect because reported accounting numbers can affect the transfer of resources as investors may use them to make investment decisions. Option B is incorrect because credit rating agencies use accounting information to assess both assets and liabilities. Option D is incorrect because efficient capital markets do encourage innovation by providing funding to innovative projects and firms.

Which of the Following Is Correct