Capital Marketplace Essay

Journal of Accounting and Economics 31 (2001) 105–231

Capital marketplaces research in accounting$

T. P. Kothari*

Sloan University of Supervision, Massachusetts Company of Technology, Cambridge, MOTHER 02142, UNITED STATES Received twenty two November 99; received in revised form 8 Drive 2001

Summary I review empirical exploration on the regards between capital markets and financial assertions. The principal causes of demand for capital markets analysis in accounting are fundamental analysis and valuation, assessments of market efficiency, as well as the role of accounting quantities in agreements and the political process. The administrative centre markets research topics of current curiosity to research workers include checks of marketplace efficiency regarding accounting data, fundamental analysis, and benefit relevance of financial confirming. Evidence from research about these topics is likely to be helpful in capital industry investment decisions, accounting regular setting, and corporate financial disclosure decisions. ur 2001 Elsevier Science W. V. All rights reserved. JEL classification: F00; F30; G15; M41 Keywords: Capital markets; Economic reporting; Primary analysis; Value; Market efficiency

$ I actually thank Jeff Abarbanell, Anwer Ahmed, Sudipta Basu, Patty Dechow, Dan Gode, David Guay, Charles Lee, Greg Lipe, Mike Mikhail, Jowell Sabino, Jake Thomas, Charles Wasley, and Tzachi Zach for helpful comments and discussions. My spouse and i am specifically indebted to Doug Skinner and Jerry Zimmerman, publishers, for thorough comments in several breezes of the conventional paper. I accept financial support from the New Economy Value Research Lab at the MIT Sloan College of Administration.

*Tel.: +1-617-253-0994; fax: +1-617-253-0603. E-mail addresses: [email protected] edu (S. G. Kothari). 0165-4101/01/$ - find front matter r 2001 Elsevier Research B. V. All privileges reserved. PII: S 0 1 6 5 -- 4 1 0 1 ( zero 1 ) 0 zero 0 3 0 - 1

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S. P. Kothari as well as Journal of Accounting and Economics 23 (2001) 105–231

1 . Launch 1 . 1 ) Objective in the review document My assignment is to review research on the relation between capital markets and financial statements. This can be a broad part of research that originated together with the seminal syndication of Ball and Brownish (1968). The literature is continuing to grow rapidly with over 1000 published papers in leading academic accounting and finance journals in past times three decades. The approach I adopt intended for the review involves a survey in the literature employing an economics-based framework. We begin with an analysis of the demand for and supply of research within the relation among financial info and capital markets. This can be the organizing structure of my personal discussion of different areas within just capital markets research. A crucial objective with the review is to produce a pedagogically valuable record. Toward this end, the review extends at least two previous comprehensive research of the capital markets study in accounting by Lev and Ohlson (1982) and Bernard (1989). Because they provide in-depth summaries of research in the 1970s and 1980s, the majority of the research examined in my research is from the late eighties and nineties. In addition to offering a fairly detailed overview of analysis in the past 10–15 years, I discuss the genesis of important tips in the materials and the contingency developments that stimulated a lot of the ideas. We also vitally evaluate the exploration findings and research patterns employed in previous research. The main objective is always to offer rivalling hypotheses and explanations intended for the noticed findings. This kind of naturally brings about unresolved problems and directions for future research noted throughout the review. I hope petulante students (and their instructors) find the analysis useful in preparing themselves intended for successful professions in research. I review almost entirely empirical capital markets research. However , empirical research is (or should be) informed by theory, since interpretation of empirical evaluation is not possible without theoretical guidance. Consequently , I label the underlying theory and...

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