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BMAN30071

SHARE PRICES AND ACCOUNTING INFORMATION

25 January 2022

Question 1

In 1989 Lev reviewed twenty years of empirical return-earnings studies and concluded that the findings in most studies suggested a weak association between returns and earnings. Summarise the arguments and observations in Lev and discuss the extent to which arguments and findings in the subsequent literature have challenged, or supported, the main conclusion in Lev.               (50 marks)

Question 2

Gelb and Zarowin examine the association between disclosure quality and share price anticipation of earnings. Review the research in Gelb and Zarowin by discussing their (i) hypothesis, (ii) research design, and (iii) empirical findings. Discuss which firm attributes other than disclosure quality are likely to affect share price anticipation of earnings and explain why the results in Gelb and Zarowin are unlikely to be driven by these other firm attributes. (50 marks)

Question 3

Research has focused on book value of equity as an explanatory variable in accounting based valuation models. Describe and assess two models in which valuation depends on book value of equity. How do the two models compare (i) with each other and (ii)

with the simple earnings capitalisation model?                                  (50 marks)

Question 4

Recent  accounting  research  has  focused  on  the  value-relevance  of  narrative management  statements  and  the  value-relevance  of  their  textual  characteristics. Review two studies from this stream of the recent accounting literature by discussing (i) hypotheses, (ii) research design, and (iii) empirical findings. Briefly, what do you see as the main difference between the two reviewed studies?                           (50 marks)