5

EMPIRICAL RESEARCH: IMPLICATIONS

FOR Fl NANCIAL STATEMENT ANALYSIS

CHAPTER OUTLINE

INTRODUCTION Deht Cow•nalillf1p<:!thesi.•·

Po/iti<·ul '"·'' Hot>alhe.<is
CLASSICAL APPROACH Summary of the Re;eareh
Empirical Research: A Mid-Course Evaluation
MARKET-BASED RESEARCH
Cmica/ Eo•a/uotion of Re.><'arch Fmdmg1·
Efikient Market Theory
Marlwr A~omali~>
Modem Portfolio Theory
Tests of the EMH versus the Mechanistic Hypothesis DIRECTION OF CURRENT RESEARCH: BACK
Ball and Brown Study TO THE FUTUREl
lnfonnat.on Content Studic> Ball and Brown Revi.;ited
Relationship Between Eammgs and Stock Return~ Conte~tual Approaches and r·undamental Analysis

4c('lmnllnl? Variahle Other Area.< o/ R<•wan·h

Mm-!er-h<~<ed Vm·i,h/e Coming Full Circle: From Edwards and Bell to Ohlson
Te.1 1o/the Re/allomh•p Be!K een lh<' Gm1d Ne,-.,!Bwl f\leH'S Markel (/,)e/f!< <en<''' and Ac<·mmlinK
Paranww· and Ahnm mal Retum.<
IMPLICATIONS OF EMPIRICAL RESEARCH
POSITIVE ACCOUNTING RESEARCH FOR FINANCIAL STATEMENT ANALYSIS
Disclosure and Regulatory Requirements
Agency Theory
Bmw,, Plan H<•pnlhe.\i,,

CHAPTER OBJECTIVES

The gG81s ofttus chapter arc to:
I. Review the class1cal approach to accounting the-
ory and the framework that still underlies most ac-
counting standard-setting activities.
2. Survey market-based accounting research that exam-
ines the relationship between stock prices and finan-
cial reporting.
3. Explain ''positive" accounting theory and its empha-
sis on the effect of financial reporting on manage-
ment. creditor, and regulatory decision making.
4. Examine the current trend of accounting research.
5. Discuss the relevance of empirical research to finan-
cial statement analysis.

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