BUSN20019: Role of Financial statement in Investment Decision making – Melbourne Central Queensland University – Accounting Assignment

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Accounting Assignment:

In the 1960s, the main focus of value relevance of financial information was on the importance of accounting for individual users which is related to information perspective. Ball & Brown (1968) was the pioneer of information perspective. Their value relevance test made no any reference to theory (Klimczak, 2009), however, their security market prices responded to the financial information (Scott, 2003). They were based on capital market theories and even assumed that there is an efficient market hypothesis. Their study used different econometric
methods, but still, there was not any comprehensive theory behind their experiments. In contrast to, in mid1990, the focus moved from information perspective i.e. stock market reaction to measurement perspective i.e. aggregate stock market (Bernard, 1995; Feltham &
Ohlson, 1995; Beisland, 2009, Bao & Chow, 1999). Ohlson’s theory is known as Residual Income Valuation Model (RIVM) which gives a framework that is consistent with balance sheet approach (measurement perspective). It shows that firm’s market value can be considered as
profit and loss as well as balance sheet components (Scott, 2003). The study carried out by Oabisi (2009) emphasized on six public sector banks of Lagos metropolis. This study measured the effect of financial information on investment decisions in a particular stock. It used Likert Scale questionnaire to collect data and Chi-square statistical method to test the hypothesis. Their findings showed that financial information is a key component for investment decision making of quoted companies. To support this statement and go further, Perera & Thrikawala (2009) researched on the importance of financial information on investment decisions in commercial banks of Sri Lanka for the period of five years. This study used correlation coefficient between market price per share (MPS) and other financial information like Earnings Yield (EY), EPS. It showed that there is a relationship between MPS and financial information. It also stated that investors use financial information for stock market decisions in Sri Lanka.

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