The essential role of accounting information in the capital markets: Updating seminal research results with current evidence

Abstract

An extensive literature of empirical research provides important insights into the role of accounting information in the equity capital markets. In this article, we use data from 2002 through 2016 to present updated evidence on four major areas of research: the earnings-returns relation and market efficiency; earnings management; cash flows versus accruals; and financial statement analysis. In addition to updating seminal results with new evidence, we also introduce some new findings that were not in the original studies. We provide straightforward descriptions of the research methodologies and important implications from evidence from seminal studies using current empirical data. Our paper is intended particularly for the benefit of students, practitioners, and others who may not yet have been exposed to this literature.