Question 1

The 'mechanistic' hypothesis states that the market will ignore accounting changes which have no cash flow consequences.

Accepted Answer

A) True 
 B)False

Question 2

Blackwell,Noland and Winters found for small private companies that are not required to be audited,it was those that purchased audits who were charged lower interest rates.

Accepted Answer

A) True 
 B)False

Question 3

The factor that has not been found to affect the earnings response coefficient is:

Accepted Answer

A) Risk and uncertainty 
B) Industry 
C) Firm growth 
D) None of the above,i.e.all of the factors have been found to affect the earnings response coefficient 
A) Risk and uncertainty 
B) Industry 
C) Firm growth 
D) None of the above,i.e.all of the factors have been found to affect the earnings response coefficient

Question 4

When the market is described,in the context of the EMH,as being efficient this means:

Accepted Answer

A) Every investor has knowledge of all information 
B) All financial information has been 'correctly' presented by a firm 
C) Security prices reflect the aggregate impact of all relevant information in an unbiased and rapid manner 
D) All of the above 
A) Every investor has knowledge of all information 
B) All financial information has been 'correctly' presented by a firm 
C) Security prices reflect the aggregate impact of all relevant information in an unbiased and rapid manner 
D) All of the above

Question 5

One focus of the second stage of positive accounting theory development is known as ex-ante,that is,trying to explain whether managers choose certain accounting methods for opportunistic reasons.

Accepted Answer

A) True 
 B)False

Question 6

Which of these would not be considered to be a criticism of normative accounting theories?

Accepted Answer

A) They are not based on identified,empirical observations or methods 
B) Normative theories do not specify an objective nor an objective function independently of subjective preferences 
C) The prescriptions made by normative theories are falsifiable 
D) Normative theories cannot be ranked objectively because it is impossible to prove or refute claims that one objective is more important than another 
A) They are not based on identified,empirical observations or methods 
B) Normative theories do not specify an objective nor an objective function independently of subjective preferences 
C) The prescriptions made by normative theories are falsifiable 
D) Normative theories cannot be ranked objectively because it is impossible to prove or refute claims that one objective is more important than another

Question 7

Outline the research that has been undertaken on post-announcement drift and the implications of this research.

Accepted Answer

Post-announcement drift refers to the te

Question 8

The first published study to investigate the magnitude of unexpected profits and abnormal returns was conducted by Beaver,Clarke and Wright,who found a positive correlation between the mean percentage of unexpected profits and the mean annual abnormal rate of return.

Accepted Answer

A) True 
 B)False

Question 9

DeBondt and Thaler found that the winner/loser effect is attributable to investor overconfidence and biased self-attribution.

Accepted Answer

A) True 
 B)False

Question 10

The maximum debt theorem of financial leverage suggests that as financial leverage steadily increases,the value of firms fall in response.

Accepted Answer

A) True 
 B)False

Question 11

The form of market efficiency in which the security's price at any particular time fully reflects the information contained in its sequence of past prices,is called:

Accepted Answer

A) Weak form 
B) Semi-weak form 
C) Semi-strong form 
D) Strong form 
A) Weak form 
B) Semi-weak form 
C) Semi-strong form 
D) Strong form

Question 12

'The empirical research provides evidence of benefits to companies through lower cost of equity and debt capital when they voluntarily purchase an audit or purchase a high quality audit.' J.Godfrey,et el,'Accounting Theory',7th Ed.p.442.
Outline the details of a study undertaken on the above question and explain reasons that have put forward for the finding.What do researchers see as a 'high quality audit'?

Accepted Answer

The study mentioned in the question was

Question 13

The studies that followed Ball and Brown's 1968 foundation study:

Accepted Answer

A) Mostly supported their conclusions 
B) Mostly did not support their conclusions 
C) About half the studies supported their conclusions and half did not 
D) There have been no follow-up studies 
A) Mostly supported their conclusions 
B) Mostly did not support their conclusions 
C) About half the studies supported their conclusions and half did not 
D) There have been no follow-up studies

Question 14

Which of these does not describe the differential information hypothesis?

Accepted Answer

A) Amount of information available from sources other than accounting reports is an increasing function of firm size 
B) The larger the firm,the more information is contained in profits 
C) The differential information hypothesis is developed from the theory of transaction costs and different incentives for information search 
D) Incentive to undertake research for mispricing is greater for larger firms,given the costs of information search are fixed and constant across firms 
A) Amount of information available from sources other than accounting reports is an increasing function of firm size 
B) The larger the firm,the more information is contained in profits 
C) The differential information hypothesis is developed from the theory of transaction costs and different incentives for information search 
D) Incentive to undertake research for mispricing is greater for larger firms,given the costs of information search are fixed and constant across firms

Question 15

'There is increasing evidence that markets can be fooled by accounting numbers'.' J.Godfrey,et el,'Accounting Theory',7th Ed.p.442.Discuss.

Accepted Answer

The statement "There is increasing evide

Question 16

Which of these describes the principle based on the optimal leverage approach of financial leverage?

Accepted Answer

A) There is an ideal financial leverage position for each firm 
B) As financial leverage steadily increases,the value of firms falls in response 
C) When financial leverage increases,share price concurrently increases 
D) The ERC is positively related to profit persistence factor 
A) There is an ideal financial leverage position for each firm 
B) As financial leverage steadily increases,the value of firms falls in response 
C) When financial leverage increases,share price concurrently increases 
D) The ERC is positively related to profit persistence factor

The 'mechanistic' hypothesis states that the market will ignore accounting changes which have no cash flow consequences.

Blackwell,Noland and Winters found for small private companies that are not required to be audited,it was those that purchased audits who were charged lower interest rates.

The factor that has not been found to affect the earnings response coefficient is:

When the market is described,in the context of the EMH,as being efficient this means:

One focus of the second stage of positive accounting theory development is known as ex-ante,that is,trying to explain whether managers choose certain accounting methods for opportunistic reasons.

Which of these would not be considered to be a criticism of normative accounting theories?

Outline the research that has been undertaken on post-announcement drift and the implications of this research.

The first published study to investigate the magnitude of unexpected profits and abnormal returns was conducted by Beaver,Clarke and Wright,who found a positive correlation between the mean percentage of unexpected profits and the mean annual abnormal rate of return.

DeBondt and Thaler found that the winner/loser effect is attributable to investor overconfidence and biased self-attribution.

The maximum debt theorem of financial leverage suggests that as financial leverage steadily increases,the value of firms fall in response.

The form of market efficiency in which the security's price at any particular time fully reflects the information contained in its sequence of past prices,is called:

The studies that followed Ball and Brown's 1968 foundation study:

Which of these does not describe the differential information hypothesis?

'There is increasing evidence that markets can be fooled by accounting numbers'.' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.442.Discuss.

Which of these describes the principle based on the optimal leverage approach of financial leverage?

Introduction

Accounting Theory Construction

Role of Theory in Accounting Regulation

Theory Underpinning Accounting Standards

Measurement

Accounting Measurement Systems

Assets

Liabilities and Owners Equity

Revenue

Expenses

Positive Theory of Accounting Policy and Disclosure

Behavioural Research

Emerging Issues in Accounting and Auditing

Filters

Exam 12: Capital Market Research

The 'mechanistic' hypothesis states that the market will ignore accounting changes which have no cash flow consequences.

Blackwell,Noland and Winters found for small private companies that are not required to be audited,it was those that purchased audits who were charged lower interest rates.

The factor that has not been found to affect the earnings response coefficient is:

When the market is described,in the context of the EMH,as being efficient this means:

One focus of the second stage of positive accounting theory development is known as ex-ante,that is,trying to explain whether managers choose certain accounting methods for opportunistic reasons.

Which of these would not be considered to be a criticism of normative accounting theories?

Outline the research that has been undertaken on post-announcement drift and the implications of this research.

The first published study to investigate the magnitude of unexpected profits and abnormal returns was conducted by Beaver,Clarke and Wright,who found a positive correlation between the mean percentage of unexpected profits and the mean annual abnormal rate of return.

DeBondt and Thaler found that the winner/loser effect is attributable to investor overconfidence and biased self-attribution.

The maximum debt theorem of financial leverage suggests that as financial leverage steadily increases,the value of firms fall in response.

The form of market efficiency in which the security's price at any particular time fully reflects the information contained in its sequence of past prices,is called:

The studies that followed Ball and Brown's 1968 foundation study:

Which of these does not describe the differential information hypothesis?

'There is increasing evidence that markets can be fooled by accounting numbers'.' J.Godfrey,et el,'Accounting Theory',7th Ed.p.442.Discuss.

Which of these describes the principle based on the optimal leverage approach of financial leverage?

Introduction

Accounting Theory Construction

Role of Theory in Accounting Regulation

Theory Underpinning Accounting Standards

Measurement

Accounting Measurement Systems

Assets

Liabilities and Owners Equity

Revenue

Expenses

Positive Theory of Accounting Policy and Disclosure

Behavioural Research

Emerging Issues in Accounting and Auditing

Filters

'There is increasing evidence that markets can be fooled by accounting numbers'.' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.442.Discuss.