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T he S tockmarket's P erception O f A ccounting I nformation
Author(s) -
Easton Peter
Publication year - 1991
Publication title -
australian accounting review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.551
H-Index - 36
eISSN - 1835-2561
pISSN - 1035-6908
DOI - 10.1111/j.1835-2561.1991.tb00122.x
Subject(s) - earnings , shareholder , accounting , net income , perception , economics , business , finance , biology , neuroscience , corporate governance
This paper reviews recent research on the stockmarket's perception of the information provided in the annual corporate accounting report to shareholders. Although accounting research is still in its infancy, some conclusions are clear. There is solid evidence that sharemarkets pay attention to the announcement of accounting net income and that prices react favourably to income increases and unfavourably to income decreases. Further, there is some evidence describing the way that income information is translated into price. Recent studies show that although earnings appear to be a poor summary of the events affecting the firm over the year, it is a good summary information variable over a longer (10‐year) horizon. The paper also reviews findings consistent with the idea that the information in company reports is potentially useful but that the sharemarket does not take adequate advantage of it.