I am going crazy and in circles with the answer:

Good evening everyone, my name is Margie and today ill be discussing the topic capital market research, specifically the association between the share price and accounting information.

Decision-usefulness objective for financial reporting is based on the view that accounting information is used by investors in making resource allocation decisions and setting the price of shares.

My questions for this topic is: It is argued that there is a weak association between the share price and accounting information, therefore standard setters should be more concerned with the monitoring and control (stewardship) objectives of accounting. Do you agree?

Yes, I agree. And now ill explain why.

Financial information is used by many stakeholders. Of them, the present and prospective investors are a major group. Investors use financial statements to obtain valuable information used in the valuation andcredit analysisof companies. Investors only really care about where there money is going and where it will be in future. As capital vendors, investors rely upon the enterprise's financial situations for both the protection and profitability in their investments.

There are two primary perspectives in this research:

oInformation perspective: - accounting information

Focuses on accounting providing information to users of financial statements about a firm's financial position and performance.

oMeasurement perspective: company share price

Focuses on accounting amounts as measures of the firm's resources (assets), claims to those resources (liabilities) and components of performance (revenues and expenses).

It is true that investors may study the financial statements to make informed decisions regarding the acquisition of shares or regarding the liquidation of shares on hand.

Financial statements are meant to portray, in a fair manner, the results of the entity for a period and its financial position as at the end of the period. Those statements are then audited by independent auditors and their audit report is addressed to the shareholders.

Studies of the world's major stock exchanges show that any relationship evident is weak at best.

oLow association between reported earnings and share prices. Possibly because:

Investors focus on all events that affect future cash flows, not those recognised by accounting.

Managers risk preferences and negative earnings.

Losses should not be considered the same as profits.

Relevance and faithful representation:

oIt is assumed that an accounting amount will be value relevant only if the amount reflects information:

that is relevant to investors, and

it has been measured reliably.

oAn accounting amount is considered value relevant if it has an association with share prices.

oThe degree of association for value relevance of earnings differs internationally.

Measurement perspective research:

oFair value accounting is a focus of value relevance research.

oResearch suggests fair values are more informative relative to historical cost.

oIt is suggested that the level of informativeness is affected by measurement error and the source of the estimates of fair value.

Behavioral finance

There is mounting empirical evidence suggesting that existing finance theories appear to be deficient in fundamental ways.

Behavioural finance:

oPeople make systematic errors in the way they think.

oPeople are overconfident about their abilities.

oPeople put too much weight on recent experience.

oSeparate decisions that should be combined.

The basic interest of the shareholders is that of an owner and hence they are more concerned about control and proper disposal of the money that is put in the hands of the management. Hence, standards setting should be oriented towards improving the monitoring and controlling utility of financial statements. Which would also then reflect a fairer association with the companies share price.

The findings show that income variables are the most important explanatory variable in valuation equations. In other words, accounting information has a strong positive correlation to investors' decisions.