QUESTION 1:

What assumptions about market efficiency are typically adopted in capital markets research? What do we mean by 'market efficiency'?

QUESTION 2:

Evidence shows that share prices might not fully react to financial accounting information immediately and that abnormal returns might persist for a period of time following the release of information (a case of 'post-announcement drift'). Does this indicate that securities markets are not efficient and that assumptions about market efficiency should be rejected?

QUESTION 3:

What, if any, effect would the size of an entity have on the likelihood that the capital market will react to the disclosure of accounting information?

QUESTION 4

In their article entitled "Voluntary forward-looking statements driven by corporate governance and their value relevance" Wang & Hussainey (2013) conclude that "the voluntary disclosure of forward-looking statements related to corporate governance helps investors to better anticipate future earnings."

a) Briefly summarise the arguments that Wang & Hussainey put forward to support this investigation.

b) In your opinion, how do you think that this study may be beneficial to managers?

Below is the article that question 4 is talking about

Conclusion In this paper, we examine the associations between corporate governance mechanisms and voluntary forward-looking statements. We further examine whether voluntary forward-looking statements that are driven by governance are informative about future earnings, by using a large sample of listed firms in the unique setting of the regulatory environment in the UK. To the best of our knowledge, this is the first paper to examine the impact of a comprehensive set of corporate governance factors on forward-looking statements which focuses on a large sample of UK firms. We use a computerized content analysis to measure disclosure, and we hand-collect corporate governance information for a sample of 5489 firm-year observations. We find, in the UK context, that board size and board composition (the proportion of non-executive directors) are related positively to the level of voluntary earnings disclosures. Director ownership and role duality have a negative relationship to the level of voluntary forward-looking statements. Furthermore, the size of the audit committee has a substitute relationship with the volume of voluntary forward-looking statements. Firms' characteristics such as dividend propensity, firm size, profitability, leverage and industry affect the volume of forward-looking statements disclosed in the narratives of annual reports. Furthermore, we find that the voluntary disclosure of forward-looking statements related to corporate governance helps investors to better anticipate future earnings. The forward-looking statements unrelated to corporate governance, however, have no impact on the share price anticipation of future earnings. Nevertheless, this paper contributes to the literature by offering new empirical evidence that effective corporate governance mechanisms are correlated significantly with the levels of forward-looking statements in the narrative sections of annual reports. The US studies that focus on managements' earnings forecasts report no evidence on the effect of board size. No study has explicitly tested the effect of role duality or the impact of director ownership on the voluntary disclosure of forward-looking information. In the narratives of UK annual reports, the level of forward-looking statements is higher in firms with larger boards and more non-executive directors but lower in firms with higher director 46 M. Wang, K. Hussainey / J. Account. Public Policy 32 (2013) 26-49 ownership and role duality. These findings provide an empirical rationale for the current debate on the potential benefits of improving the quality of corporate governance in the UK. UK corporate governance guidance encourages the use of non-executive directors and the separation of the CEO and the chairperson. The insignificant evidence on the independence and the financial expertise of audit committee members, however, shows that, although recommended in the UK corporate governance code, these audit committee characteristics are ineffective in improving narrative reporting in the UK. Finally, our findings indicate that institutional setting at the national level should be considered in further research on forward-looking statements. The set of effective corporate governance mechanisms, associated with less information asymmetry between management and shareholders, appears to vary even between Anglo-Saxon countries. For example, in the US, institutional ownership is associated with greater forecast occurrence and precision (Karamanou and Vafeas, 2005) but this has no significant relationship with the level of voluntary forward-looking statements in the UK. We are aware that our empirical findings, despite their robustness, are subject to limitations regarding our measure of the disclosure scores. For example, our measure of the disclosure scores is not able to consider the quality of the information in forward-looking statements. Users of corporate narrative reporting may be more interested not only in disclosure quantity but also in disclosure quality. Further research could benefit from developing a quantitative measure for the disclosure quality of narrative reporting which is considerably difficult for studies with large-scale samples