The Essential Role of Accounting Information in the Capital Markets: Updating Seminal Research Results with Current Evidence

SYNOPSIS: An extensive literature of empirical research over the past 50+ years provides important insights into the role of accounting information in the equity capital markets. But how has the role of accounting information changed, given advancements in the dissemination and processing of accounting information, as well as changes in corporate governance, securities regulations, and trading? In this paper, we use recent data to examine whether seminal findings from prior studies in the following three major areas of research still hold: the earnings-returns relation, earnings management, and market efficiency. We also introduce some new findings that were not in the original studies. We use a framework that maps firms’ business activities into share prices and provide straightforward descriptions of the research methodologies, empirical findings, and important implications from the evidence to benefit accounting students, instructors, practitioners, and others who may not yet have been exposed to this research.