Knowledge Test

1. Capital markets research focuses on the relationship between:

a. Accounting information and capital markets

b. Capital markets and the economy

c. Accounting information and standards setting

d. Standards setting and accounting information

2. Which of the following is NOT one of the three key assumptions underlying capital markets
research:

a. Accounting information can be used to form expectations about profitability

b. Expectations about profitability inform expectations about dividends

c. Expectations about dividends determine market price for shares

d. None of the above, i.e. they are ALL assumptions underlying capital markets research.

3. Which of the following factors are commonly considered by capital markets research?

i. Accounting earnings

ii. Unexpected earnings

iii. Asset pricing

iv. Market efficiency

a. None of them

b. i. and iv. only

c. i., ii. and iv. only

d. All of them

4. To test whether accounting information impact on capital markets researchers examine:

a. The statements of shareholders about their decisions to sell shares

b. The relationship between unexpected earnings and share returns

c. The relationship between expected earnings and share returns

d. The relationship between shareholder expectations and share price

5. The kind of study used to examine how quickly accounting measures capture changes in the
information that is reflected in share prices over a given period is:

a. An events study

b. An association study

c. A qualitative study

d. A normative study

6. It has been found that prices often lead earnings. Why is this thought to be the case:

a. Accounting conservatism 'garbles' earning signals about firm value

b. Accounting statements are poor at incorporating information about human capital and
other intangibles

c. Accounting recognition criteria are less stringent for losses than for gains

d. All of the above

7. Value relevance studies attempt to assess the role of which qualitative characteristic of the
Conceptual Framework?

a. Relevance

b. Faithful representation

c. Relevance and faithful representation

d. None of the above

8. Value relevance research suggests which measurement model best links share price and
accounting information?

a. Accrual accounting

b. Fair value accounting

c. Historic cost accounting

d. Cash accounting