ACC120 Chapter Notes - Chapter 5: Capital Structure, Accrual, Time Series
Document Summary
If efficient markets and decision theories are reasonable, we should see the market value of securities respond in predictable ways to new information. Through tests of decisions usefulness, research has established that security market prices do respond to accounting information. When security markets do respond it means the information has value relevance. Without buy/sell decisions there would be no trading volume or price changes. The degree of usefulness for investors can be measured by the extent of volume or price change following the informations release. Value relevance approach takes the view that investors want to make their own predictions about future security prices and not rely on financial statements. Investors and accountants may benefit from useful information but society will not necessarily be better off. These social considerations do not invalidate value relevance. Accountants can still try and improve their competitive position by providing more useful information.
