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Company-auditor
roles
Accounting data and
creditors
Accounting
allocations
Information
economics
Cost-Benefit calculus
Cost considerations confined to producers
Benefits for investors and creditors
Noise traders
individuals who do not
necessarily respond in a
completely rational way in
terms of responding to new
information in terms of
their trading habits
may be rebalancing their
portfolios, responding to
liquidity shocks or even
acting upon whims
Return on Market
Characteristic Line
-
Rj = i + Bj (Rm i)
Rj
Rm
Bj
Rj = j + Bj (Rm) + ej
j
ej
Company-Auditor Roles
Key assumption of accounting research is
that financial statement information is
reliable...GAAP applied on consistent basis
Jointly produced by company and auditor
Demand can be explained by agency theory
Auditor research
Qualified audit report leads to lower stock price
Big Six audits more highly valued
Limitations
Real world decision makers face more complex
decisions
User diversity is an issue; behaviors may vary
Chapter 8:
Usefulness of Accounting Information
to Investors and Creditors
Firm valuation models
Efficient-markets
hypothesis
CAPM
Cross-sectional
valuation studies
Company-auditor
roles
Accounting data and
creditors
Accounting
allocations
Information
economics