1. Ball and Brown (1968) examined the market response to good and bad news in firms’ earnings announcements. How that study demonstrate both the information content of accounting information and that accounting and stock price reflect the same information about firm performance. (4 Marks)
2. b) If the study by Ball and Brown (1968) did not show a market reaction to the earnings announcement does this necessarily mean there is no association between earnings and prices if markets are semi-strong efficient? Give 3 reasons why not? (4 marks)

c) Identify and explain three reasons why share prices of different firms might react differently to earnings announcements even when these firms report the same amount of unexpected earnings.(3 Marks)

d) If you were a standard setter, how would you design financial reports differently under the measurement approach compared to the information approach? List 2 differences and discuss your reasoning.

Answer rating: 100% (QA)

a Yes The results from studies such as Ball Brown 1968 cannot be used to demonstrate that stock price and accounting measure exactly the same things about the firm Firstly for many accounting measures ... View the full answer