You estimate empirically the ERC of firm J as 0.38. Firm K is identical to firm J

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You estimate empirically the ERC of firm J as 0.38. Firm K is identical to firm J in terms of size, earning power, persistence of earnings, and risk. Unlike firm J, however, firm K includes a high- quality financial forecast in its MD& A. You estimate firm K’s ERC as 0.57. Which firm’s net income report appears to be more useful to investors? Explain. Does this mean that all firms should be required to prepare high- quality financial forecasts? Explain.

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Firm Ks net income appears to be more useful to investors because it has a higher ERC This suggests that increased disclosure such as financial foreca...View the full answer

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Financial Accounting Theory

ISBN: 978-0132984669

7th edition

Authors: William R. Scott

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Question Posted: Sep 09, 2014 11:10 AM

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You estimate empirically the ERC of firm J as 0.38. Firm K is identical to firm J

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Firm Ks net income appears to be more useful to investors because it has a higher ERC This suggests that increased disclosure such as financial foreca...View the full answer

Financial Accounting Theory

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